Management perception of the attractiveness of the public service vehicle insurance business in Kenya
Kiama, William M
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Organisation's survival is dependent on the ability of the organizstion to adapt to changes in the environment. The type of industry that the firm finds itself in will influence the way it compete and the strategies it will adopt. The modified Porter's model has been used to study the perceived attractiveness of PSV insurance business by managers in the insurance industry. The study focused on thirty five insurance companies licenced to underwrite motor insurance business in Kenya. Data was obtained from managers of the various insurance companies using a questionnaire. The data was coded and analysed using SPSS. The level of attractiveness depends on the strength of the six sources of competitive pressure. It is important for managers to understand the competitive pressure associated with each force to enable them respond strategically, so as to become relevant in the market place. The findings indicate that the level of competition in PSV insurance is quite high. This is the major factor in determining the level of attractiveness. The bargaining power of customers is high as the industry is dominated by two major customers. This is the second strongest factor in determining the level of attractiveness. The power of suppliers is moderate, with lawyers and doctors leading, followed by reinsurers. The government also has an effect on profitability. PSV insurance business became attractive upon the introduction of Michuki rules as this was said to decrease the number of accidents and their severity. This is a critical factor for making the industry attractive. However the power of the government can only be described as moderate. Most of the managers do not find PSV class of insurance being unattractive. The main reasons cited are heavy claims and poor driving habits of matatu drivers. From the analysis, we note that the level of competition IS high, the bargaining power of customers is strong, the suppliers and the government have a moderate power over the underwriters but the substitutes have no major effect. The combination of these two strong forces makes the business unattractive and therefore, only a few underwriters venture into this class of business.
CitationA Management Research Project Report Submitted in Partial Fulfillment for the Requirements of the Degree of Masters of Business Administration (MBA), School Of Business, University Of Nairobi