The Effects of Financial Fraud and Liquidity on Financial Performance of Insurance Companies in Kenya

Abstract

Fraud in kenya’s insurance industry has increased in the recent past and is likely to increase in the coming days. According to KPMG (2015) Kenya was unable to quantify the detected volume of policy fraud and had a low number of detected claim fraud compared to Tanzania but higher than Uganda. Fraud if left unchecked will have dire consequences on the liquidity and consequently the financial performance of insurance companies. The main purpose of the study was establishing effects of financial fraud as well as liquidity on the financial performance of insurance companies in Kenya. The research adopted a descriptive research design. Regression analysis model was used in which the dependent variable was the ROA. The independent variables were the liquidity ratios and the annual fraud loss. The multiple regression was later adopted to determine how dependent variable relates to ROA. The results showed that insurances ‘financial performance variable return on assets (ROA) has significantly affected by liquidity ratios and fraud loss with positive correlation. The strong and positive pearson correlation coefficient imply that financial fraud loss and liquidity ratios had a strong and significant influence of financial performance of insurance companies for the period considered the study recommends that insurance companies in Kenya should strengthen their control systems, establish antifraud unit and strictly adhere to liquidity-trade off