The Influence Of Risk Management Processes On Financial Performance Of Insurance Firms In Kenya

Abstract

Risk "management is deemed as a core factor for business competitiveness. “It facilitates a firm to develop a unique strategy to minimize the potential losses and open a door for the exploitation of new opportunities. In recent years, insurance companies have increased their focus on risk management. Insurance companies are in the risk business and as such cover various types of risks for individuals, businesses and companies. The general objective of this study was to establish the influence of risk management processes on financial performance of insurance firms in Kenya. The specific objectives assessed the influence of risk management planning, risk identification, risk analysis and risk monitoring on the performance of insurance firms in Kenya. The study was anchored on Risk Management Theory. Other theories included, Agency theory and contingency planning theory. The target population of the study was 56 insurance firms. The unit of observation in the insurance firms were the risk managers and accountants. Primary data was collected by means of a structured questionnaire. The data was analyzed using descriptive and inferential statistics. The study conducted normality test, multicollinearity and heteroscedasticity tests. A regression model was used to test the influence of risk management processes on performance. The hypotheses developed by the study were tested at 5% significance level. Findings revealed that there was a significant effect of risk management processes on the financial performance of insurance firms in Kenya. Risk management planning had a positive and significant effect on financial performance of insurance firms in Kenya. Risk identification process had a positive and significant effect on financial performance of insurance firms in Kenya. Risk analysis had a negative and insignificant effect on financial performance of insurance firms in Kenya. Risk monitoring had a positive and significant effect on financial performance of insurance firms in Kenya. To keep abreast with the changing economic times, insurance firms need to be vigilant on the measures they take so as to be able to minimize risk exposure. The study recommended that insurance firms should practice risk management strategies in order to boost their performance either in a financial or operational perspective. Moreover, an establishment of comprehensive risk management of insurance firms should be made a prerequisite as it contributes to the overall risk management systems. This study provides useful information to practitioners and academics who are interested in identifying the various risks that insurance firms in Kenya often face. This would go a long way in mitigating the risks before they occur.