The Effects of Operational Risk Management Practises on Financial Performance in Insurance Companies in Kenya

Abstract

Over the last decade operational risk management has been attracting an increasing attention in many organizations various sectors. The owners are aware of these challenges but lack of comprehensive and integrated approach in tackling operational risks continues to be a big challenge to all of them. Poor operational risk management by many insurance companies has led to accumulation of many claims either from internal clients or eternal clients hence increased losses and poor financial performance for many corporate organizations. Insurance companies are in the business of managing risks for both their customers and their own. This obliges them to integrate risk management practices into their systems, procedures and culture. By connecting risk management to performance, insurance firms can see viably the benefit of actualizing risk management framework more. No study has been done in Kenyan context to investigate the effects of operational risk management practices on financial performance in insurance companies. The study aimed at bridging this gap by conducting a research on the same. Descriptive research design was adopted on this research. The research adopted a census survey of all the 47 registered insurance companies operating in Kenya. The study adopted descriptive statistics. Data was analyzed using qualitative while the returns were analyzed by use of regression and correlation analysis model. Based on the findings the study concluded most of the insurance companies have risk and compliance department. This because it is understood that financial sector is the most unpredictable sector in the current financial crisis and its exposed to a number of risks. By having a good operational risk management it is expected to significantly influence performance of company’s functioning and efficiency by 41%, 22%. Risk analysts, executive management and employees, board of directors influence the financial performance to a greater extent. The research also found out those companies insures different types of risks but not all risks and that the company does not insure catastrophic risks and the company sets aside sufficient technical reserves to pay for claims.