An investigative study on the management of property risks in Kenya: A case study of the insurance sector.
Risk can be defined as a hazard, chance or likelihood of loss or bad consequence. It is closely associated with uncertainty where nobody can claim to be sure of what might happen next whether as an individual, business enterprise, society or the state In general. Risk can be classified as pure, speculative, fundamental or particular . Generally, in practice, risk management is associated with insurance. Nevertheless, risk management is much broader than insurance in that it deals with both insurable and uninsurable risks. Insurance is indeed a subset of risk management and strategically serves as one of the most important methods of risk financing which no risk management programme can afford to ignore. While it is true that insurance IS one way of handling risk, the underwriting of property and liability risks by insurers importantly need to be looked at from the perspective of risk management. The need for insurers to be aware and consciously manage the risks they have underwritten is of paramount importance. This is the crux of this research project. Though most Kenyan insurers appreciate the potential benefit of incorporating risk management in the running of their business, they have basically remained as premium collectors "and payers of claims. This research project has been written in four chapters. The first chapter contains a general introduction of the subject of risk and insurance particularly how these t~o relate to one another in the realm of property and liability risks underwriting. It gives the situation of the Kenyan insurance industry in regard to the practice of risk management thereby bringing out the research problem on which the research is about. The rest of the chapter is taken up by a statement of the research objectives, hypothesis, methodology, assumptions takei1 and a justification of the research work. The objectives of this study are fourfold. First is to find out whether Kenyan insurers are aware of and understand the concept of risk management and appreciate its importance in the running of their businesses and if so to what extent they incorporate the same in risk underwriting. Secondly the study has sought to find out whether the existing Insurance legislation in Kenya recognises the risk management aspect of insurance practice and whether there is any particular legislation in regard to risk management and risk managers in Kenya. Thirdly, it has strove to find out if Kenya has any set qualification requirement(s) for practitioners of risk management whether as employees of insurers or consultants. Fourthly, having found out the above, the study has recommended ways and means of promoting risk management practice in Kenya's insurance industry . The second chapter is about review of related literature that forms the framework of the study. In it, risk is defined and explained and thereafter related to the concept of insurance following which the concept of risk management is introduced and examined from the viewpoint of the underwriter. Various aspects of risk management such as risk identification, measurement/analysis and control are looked into in detail. Insurance and Risk Surveys as a major method of risk identification has been given special attention. The role of risk management in underwriting property risks has been looked at. As it engages in its normal business of underwriting risks, it is necessary for an insurer to formulate and work under the guidance of a risk management policy. The legislative environment in regard to insurance and risk management in the Kenyan industry particularly in regard to the Insurance Act Cap 287 of the Laws of Kenya has also been examined in this chapter as was the training and qualification standards and requirements of the available risk managers/surveyors. The third chapter is about data presentation and gathering with a preamble on the current set up of the insurance industry in Kenya. The selection of data source and sampling of the respondents has been defined and outlined. This is then followed" by the presentation of the various aspects of the gathered data including involvement of insurers in management of risks, risk management policies by insurers, current insurance legislation, risk identification, analysis, valuation of risks, risk control, e.t.c. The study is basically an investigative study and as such the survey design is adopted. Questionnaires were distributed to a sample of 18 insurance companies out of a total of 36 while all registered 6 risk managers/surveyors. An interview was conducted with the Commissioner of Insurance and the Honorary Secretary to the Institute of Loss Adjusters and Risk Surveyors. Due to the exploratory nature of the study, a qualitative analysis of the available data has been adopted. Data from questionnaires and interviews has been coded and frequency tables in simple percentages used to analyse responses to each question. A descriptive approach has then been adopted in communicating the results In summary the study finds that although risk management is consciously present in Kenyan insurance business, there still lacks a clear understanding of the discipline in . . the industry. Seventy two (72) percent of this research's respondents have been found not to have a risk management policy in their operations and therefore do not practice it. It has been found that the current legislation, the Insurance Act Cap 487 of the laws of Kenya does not address the issue of the practice of risk management in the underwriting of property risks. It only gives a general guideline on the investment of insurance premium funds by the risk takers. It is recommended that a review of the Act be carried out to give the industry the necessary legal framework of actively incorporating risk management in their operations. The involvement of risk surveyors/managers, where 'they are available, by insurers has been found not comprehensive enough. They are not involved in risk control and evaluation even after they have recommended appropriate risk control measures . It has been found that although insurers have adequate information for any risk management activity, there lacks an efficient means of storage and retrieval of the same. Computerisation and general improvement of their information systems is recommended. Training, qualification and professional organisation of the locally available risk managers/surveyors/assessors has been found wanting. The government has been urged to streamline the available qualification channels or take the initiative to tailor an appropriate curriculum for risk management training. A formal recognition of the recently launched Institute of Loss Adjusters and Risk Managers as the self regulating body for risk management in the country is also encouraged.