Effect of expansion strategies on performance of insurance Industry in Kenya

Abstract

According to Insurance Industry of Kenya Report of 2017, in 2017, world insurance premiums in nominal USD terms increased by 4.0% to USD 4,892 billion, up from USD 4,703 billion recorded in 2016. Further, the report indicates Africa’s insurance industry premium grew by 0.5% in real terms to USD 66.7 billion in 2017, representing 1.4% of World’s insurance market share. In Kenya, insurance growth was 2.8 % in year 2016 compared to 2.63% in previous year while South Africa growth was 12.9%. The comparative growth rate of Kenya’s insurance industry is still low. In 2017 Life and non-life insurance recorded a penetration ratio of 1.02% and 2.00% respectively. The penetration of Insurance among the Kenyan population is low compared to other countries outside Africa. A good example is Malaysia which has an estimated 41% of the population covered. There is therefore need for establishing why expansion of insurance in Kenya remains low. This may be rooted in the insurance industry expansion strategies. However studies in the past on the subject of expansion strategies in financial and non-financial establishments have yielded conflicting outcomes with some studies have recommended further studies. These inconsistent results point to the fact that the effect of expansion strategies is still not clear and needs further investigation. Therefore clear knowledge is lacking on effect of expansion strategies on organizational performance. The general objective of the study was to analyze the effect of expansion strategies (ES) on performance of insurance industry in Kenya. Specific objectives of the study was to: establish the effect of diversification strategy (DS) on performance, establish the effect of product development strategy (PDS) on performance and to ascertain the effect of penetration strategy (PS) on performance of insurance industry in Kenya. The study was anchored on resource-based theory and Porter's competitive strategy theory. A correlational survey design was adopted with a study population of 52 Chief Executive Officers of the 52 insurers across the country. A census study was conducted. Reliability of the research instrument was ascertained at Cronbach’s Alpha of .790, .802, .823 and .794 for DS, PD, PS and Performance respectively. Validity of the instrument was achieved through expert opinion. Regression coefficients were; (B = 0.215, p< 0.05), (B = 0.353, p< 0.05), (B = 0.449, p< 0.05) for DS, PD, and PS respectively. R2 = .637. These results show that DS, PD and PS have each a positive significant effect on performance while ES accounts for 63.7% variation in performance of the insurance firms. It is concluded that DS, PD and PS predict performance and that ES as a unit contributes to performance. The study recommends enhancement of DS, PD and PS efforts. The government at both levels may find the results useful in policy development. The insurance industry is expected to benefit since the practitioners may use the results for firm level policy making. The study may contribute to theory building thereby contributing to body of knowledge in strategic management. Future research endeavors may be based on this.