Claims Management Practices on Financial Performance of Insurance Companies in Kenya

Abstract

The insurance sector plays a crucial role in Kenya's economic development by supporting businesses and promoting financial market stability. However, the Insurance Regulatory Authority of Kenya has noted a concerning decline in the industry's overall claims ratio, primarily due to inadequate risk management. This failure in risk management has led to substantial financial losses and the collapse of several insurance companies in Kenya. Specifically, it aims to determine the effects of claims management on these companies' financial performance. The study adopted a descriptive research design, targeting all 56 insurance companies registered in Kenya as of January 31, 2023. Primary data was collected using questionnaires, while secondary data was gathered from existing sources and systematically recorded on data collection sheets for the independent variables. This secondary data was sourced from the Insurance Regulatory Authority for the period between 2013 and 2022. Quantitative data was analyzed using descriptive and inferential statistics with SPSS. Descriptive statistics included measures of central tendencies such as means, frequency distribution, and standard deviations, while inferential statistics comprised correlation and regression analysis to determine the relationships between research variables. Data findings were presented using tables and graphs. The study found that claims management had a significant positive effect on the financial performance of insurance companies in Kenya. Claims risk management had a greater impact on financial performance when measured by ROE compared to ROA. In conclusion, the study indicates that claims risk management positively and significantly affects the financial performance of insurance companies in Kenya. Therefore, it recommends that the management of these companies continuously improve their risk management practices to reduce claim rates, enhance financial performance, and increase shareholders' wealth. Further research is suggested to explore other factors beyond risk management practices that may contribute to the reduced return on equity among insurance firms in Kenya.