An investigation on the influence of corporate governance on financial performance of insurance sector in Kenya

Abstract

A decline in performance has been seen by Kenyan insurance businesses despite the implementation of new regulations on corporate governance. The study's overarching goal was to ascertain how different standards of corporate governance affected the bottom lines of Kenyan insurance firms. The study's three main objectives were to(1) examine the connection between board composition,(2) examine the function of risk management in v influencing financial performance, and(3) examine the impacts of transparency on the financial performance of insurance companies in Kenya. Important to this inquiry were the concepts of agency, responsibility, and signaling. This study used a descriptive survey design to validate, elucidate, and contextualize the results. Among the 49 insurance companies in Nairobi City County, this study aimed to contact 10,000 department heads. The survey included 282 people in all. Secondary data was culled from audited and registered financial accounts as well as annual reports of insurance companies in Kenya, whilst primary data was derived via questionnaires. Descriptive and inferential statistics was used to examine the quantitative data, and content analysis to sift through the qualitative data. This research used multiple regression analysis to ascertain the factors impacting the profitability of insurance firms in Kenya. The findings show that risk management does not have any statistical significance as a predictor variable at the 95% confidence level (P = 0.863). A coefficient of -0.03 was found for risk management. The transparency predictor variable did not show statistical significance (P = 0.623), hence the conclusion cannot be drawn. A transparency coefficient of +0.075 was determined from the results. There was a statistically significant relationship between board participation and the outcome (P=0.019, 95% CI). We found that the board composition coefficient was +0.353. Findings from the research suggest that insurance industry strategists and legislators should prioritise board composition factors when deciding on corporate governance norms. Insurance business executives might increase profits by focusing less on transparency and more on other corporate governance rules and practices. Even while risk management should be a fundamental component of every company's governance framework, the data shows that insurance firms put too much weight on it. The study concludes that since risk management lowers financial performance, it follows that insurance companies in Kenya would see a drop in their bottom line as a result of heightened risk management. Even if there is a slight positive link between openness and performance, insurance firms in Kenya would not see a considerable improvement in their results. Board composition has a favorable effect, and hence, insurance businesses' financial performance will improve after a board composition change. The research recommends that insurance company policymakers and strategists should prioritize board composition factors when deciding on corporate governance practices. The study's recommends that insurance company management to shift their attention from transparency to other corporate governance regulations and practices that might boost their bottom lines.