Purpose: To determine how Sensitivity to Risk influence Sustainability of Insurance Companies in Kenya.
Methodology: The study adopted the positivist research philosophy and employed a descriptive research design. The target population was the 51 insurance companies as registered by the Insurance Regulatory Authority of Kenya (IRA) as at 31st December 2016. The study took a proportionate sample of 30 companies composed of 10 life, 15 general and 5 composite insurance companies respectively. The data analysis was by multiple regression analysis, performed to determine the relationship of the independent variable of Sensitivity to Risk and the dependent variable of Sustainability. The study used descriptive statistics such as the mean, standard deviation and frequencies to analyze the data. Further, the study applied inferential statistics such as the ANOVA and the T-test for further analysis.
Study Findings: The results of the study were that Sensitivity to Risk has a positive and significant effect on sustainability of insurance companies in Kenya. The study results further concluded that the operations of the board risk committees in an insurance firm, in addition to appointment of risk champions to identify and track risks enhanced the insurance company’s sustainability.
Unique Contribution: The risk based supervision regime (RBC) which came into operation in the country in 2015 is a key change in the industry, which will affect the industry players in a large way. However, the level of compliance has been quite low, as the minimum required solvency level has been set at 100% with the dates of full compliance being pushed to 2020 from the original date of December 2018. The extension of compliance date imply that most insurance companies would largely remain non-compliant during this period. The risk-based supervision, though being a step in the right direction, the model does not capture factors that enhance an insurance company’s sustainability. There are other various factors relating to agility like technological adoption and advancement in service and product innovation, which have not been included though key to a company sustainability. Further, there are a few measures adopted by companies to combat climate change but measurement and reporting of the same has not been taken care of in the current RBC framework. The IRA monitors and approves the insurance company’s staff in senior management level and directors through the ‘fit and proper’ process. In the Fit and Proper’ process of monitoring and approval, little is captured in the annual reporting or review through either a sustainability or agility index or even bringing in a management capability index. Therefore, it would be of great interest for IRA to open up the RBC model to bring in agility, sustainability and management indices.
AM Best. (2009): Special report on causes of Failure of Insurance Companies?
Amaya, P. A., & Memba, F. (2015). Influence of Risk Management Practices on Financial Performance of Life Assurance Firms in Kenya: A Survey Study of Kisii County. International journal of Economics, Commerce and Management, pp.978-998
Baxter, N. (2007). Leverage, Risk of Ruin and the Cost of Capital. The Journal of Finance, pp.395-403.
Bhoola, K., Madzhadzhi, T., Narayan, J., Strydom, S., & Heerden, H. H. (2014). Insurance Regulation in Africa: Impact on Insurance and Growth Strategies. A Paper presented at the Actuarial Society of South Africa’s 2014 Convention.
Debra, D., Donaldson, L., & Davis, J. H. (2015). Stewardship Theory or Agency Theory: CEO Governance and Stakeholder Returns. Australian Journal of Management, pp. 49-65
Field, R. (2006). Performance Management in Insurance Corporations. Journal of Business Administration Online, pp. 135-144.
Haniff, R. H., Pratsch, L. W., Executive, P., Welch, R. A., Denett, P. A., Litman, D. J., & Tychan, T. J. (2001). Guide to a Balanced Scorecard Performance Management Methodology. Procurement Executives’ Association, Available URL: www. oamweb. osec. doc. gov/bsc/guide. htm, accessed, 1.
IRA. (2015) An Assessment of Operational Strategies Influencing the Growth of Insurance Industry in Uasin Gishu County, Kenya. International Journal of Managerial Studies and Research .Volume 2, Issue 10.
Jones, J. (2011). Sustainability and Risk Management. The Insurance Industry and Sustainability.
Mueller, J. W. (2014). The Determinants of Financial Performance in General Insurance Companies in Kenya (Doctoral dissertation, University of Nairobi).
Mwangi, Y. K. (2014). The Effect of Risk Management on Financial Performance of Commercial Banks in Kenya (Doctoral dissertation, University of Nairobi).
Nyagah, B. K. (2014). The Effect of Enterprise Risk Management on Financial Performance of Pension Fund Management Firms in Kenya (Doctoral dissertation, University of Nairobi).
Omasete, C. A. (2014). The Effect of Risk Management on Financial Performance of Insurance Companies in Kenya (Doctoral dissertation, University of Nairobi).
Opler, N. W. (1994). The Impact of Business Environmental Factors on Marketing of General Insurance Products in Kenya. Nairobi:
Osiemo, J. M. I. (2015). Effects of Risk Management Practices on Financial Performance of Non-Life Insurance Firms Operating in Kisii County, Kenya (Doctoral dissertation, JKUAT).
Saleem, H., & Abideen, D. G. (2014). Global talent management. Journal of World Business. 45 (2010) 105–108
Sean, R. (2015). In What Ways Does Government Regulation Influence the Insurance Sector?
Waweru, C., & Ngugi, K. (2014). Influence of Financial Management Practices on the Performance of Micro and Small Enterprises in Kenya. European Journal of Business Management, pp. 141-161.
In-Text Citation: (Kitaka et al., 2020)
To Cite this Article: Kitaka, J. M., Kiragu, D., & Marwa, S. M. (2020). Does Sustainability Respond to Sensitivity to Risk? The Case of Insurance Companies in Kenya. Internatinal Journal of Acdemic Research in Business and Social Sciences, 10(5), 714–729.
Copyright: © 2020 The Author(s)
Published by Human Resource Management Academic Research Society (www.hrmars.com)
This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at: http://creativecommons.org/licences/by/4.0/legalcode
