Effect of Innovation on Financial Performance of General Insurance Companies in Mombasa County, Kenya

Abstract

A business entity operates with an objective of making profits in the long-run. Financial sector in any country plays a major in the growth and development of the economy. In Kenya, the insurance industry has continued to grow despite the fact that its growth had remained minimal. However, the continuous reduction in insurance penetration remains a puzzle to both the industry players and the government. This has made many insurance companies to focus their attention in improving their bottom line by embracing innovation and which has been considered to be key in reducing operational expenses and improving the overall financial performance. The core objective of this study was to assess if the General Insurance Companies operating within Mombasa County had adopted innovation in their operations and if innovation had had any impact on their financial performance. The innovation was assessed using innovation factors: Product, Marketing, Organizational and Process innovation while that of the financial performance was assessed using the ROA and ROE. The appropriate research design adopted for this study was cross-sectional survey design. The targeted population of the study was small and it comprised of all the 33 general insurance companies that have been operating in Mombasa County from the Year 2014 to 2017. The study therefore opted for a census survey where all the elements of study were included in the population. The primary data was collected using a structured questionnaire and the secondary data was generated from the industry regulator (IRA) annual published reports. SPSS version 20 was used to analyze and generate the descriptive statistics. 31 Respondents returned the questionnaires translating to a response rate of 94%. Mean, Medium and Standard Deviation were used to describe the data while the Percentage and Frequency tables were used to present the data. The regression analysis and correlation analysis was used to test the relationship and association between the two variables respectively. The model fitness was tested using the ANOVA. The study established a strong positive correlation between innovation and financial performance of General insurance companies in Mombasa County. The study further established that the level of education of these managers had a direct relationship with the financial performance of these companies. This is because an educated person tends to be more creative and hence innovative. Due to the rapid changing of the technology and which affects how insurance products will be issued and distributed, a further study on Process innovation was also proposed. Several recommendations were made from the study findings such as: Education level for all employees working for general insurance companies needs to be enhanced in order to make them cope with innovation, general insurance firms to allocate more funds to innovation budget, firms to improve technology that would enable insurance products to reach a larger market, creating awareness on contemporary innovation skills to employees working for all the general insurance firms and finally, a need for all general insurance firms to promote various aspects of innovations that could enhance their sales volume, market share, profitability and net income.