Relationship Between Risk Management and the Financial Performance of the Insurance Companies in Kenya
Abstract
Risk if not well overseen by organizations could lead to prompt collapse for most of
organizations especially those whose core business deals with risks. Risk management
should, therefore, be at the center of organization‟s operations by integrating risk
management practices into procedures, frameworks and culture of the whole association.
This involves processes such as identifying and analyzing those risks, as well as coming
up with risk handling techniques, procedures and monitoring those identified risks in
order to reduce the impact of risk on the financial performance of the organization. The
objective of the study was to establish the effect of risk management practices adopted by
Kenyan insurance companies on the financial performance. An explanatory research
outline was used for the study, with the target population being the 51 registered
insurance companies in Kenya. The study used both primary and secondary data for the
analysis. The Primary data was collected by use of questionnaires whereby 30 insurance
companies gave a response. The Secondary data was collected by use of published
reports as audited financial statements from the insurance companies. The research also
obtained some secondary data from IRA. The data covered a period of 3 years (2013-
2015). The researcher employed research analysis tool SPSS. Regression analysis was
also used in the study. The results for the study were presented using tables, pie charts
and graphs. The study established that risk management has been adopted as part of the
practices in most of the insurance firms in Kenya. This is seen in the number of facets of
various risk management adopted by the institutions. Thus, firms have better internal
controls and risk environment to sustain better performance in the organizations. The
study further concludes that while risk management may have an influence on the
performance of insurance firms, the relationship has been questioned by the study since
some of the practices have negative relationship while others have weak positive beta
coefficients. This calls into question whether risk management is well engineered within
the institutions surveyed to transmit benefits to the bottom-line of these organizations.
The study recommends that insurance companies in Kenya should adopt a multifaceted
approach to risk management in order to derive greater benefits from their risk
management efforts. Further, Kenyan insurance companies should follow current
international leading practice by adopting Enterprise Risk Management (ERM) which
incorporates other insurance risk quantification models. This will ensure that the
companies remain afloat during such times of strict regulatory regimes such as solvency
(ii) and increase in capital requirements for insurance companies.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
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