The Moderating influence of dynamic capabilities on the relationship between business model innovation and performance of insurance companies in Kenya

Abstract

Despite the increasing adoption of innovation and digital technologies in the insurance industry, many insurance companies continue to experience challenges in improving organizational performance, particularly in terms of customer satisfaction, operational efficiency, and market competitiveness. In Kenya, the insurance sector has faced persistent issues including low insurance penetration, limited product accessibility, and increasing competitive pressures. These challenges have necessitated greater emphasis on innovative business models, digital transformation, and organizational capabilities that can enhance performance outcomes and long-term sustainability. This study examined the moderating influence of dynamic capabilities on the relationship between business model innovation and performance of insurance companies in Kenya. The specific objectives were to assess the effect of business model innovation on organizational performance, examine the effect of digital transformation on organizational performance, and determine the moderating effect of dynamic capabilities on the relationship between business model innovation and organizational performance. The study was anchored on Dynamic Capabilities Theory, Resource-Based View Theory, and Diffusion of Innovation Theory, which collectively explain how firms build competitive advantage through strategic resources, innovation adoption, and organizational capabilities. An explanatory research design with a quantitative approach was employed. The study targeted all 63 insurance companies licensed by the Insurance Regulatory Authority in Kenya as of December 2023. A census approach was used, collecting data from 189 senior executives through structured questionnaires using a five-point Likert scale. A response rate of 78.8% was achieved, with 149 completed questionnaires returned. Data were analysed using descriptive statistics and hierarchical multiple regression analysis to test the study hypotheses. The findings revealed that business model innovation had a positive and significant effect on organizational performance (β = 0.301, p = 0.000), while digital transformation also showed a positive and significant effect (β = 0.187, p = 0.022). The results further indicated that dynamic capabilities had a strong positive relationship with organizational performance (r = 0.586, p < 0.01). Moderation analysis showed that dynamic capabilities significantly strengthened the relationship between business model innovation and organizational performance (β = 0.168, p < 0.05), with the full regression model explaining 40.3% of the variance in performance. The study concluded that business model innovation and dynamic capabilities are critical drivers of organizational performance in Kenya’s insurance sector. Dynamic capabilities enhance the effectiveness of innovation initiatives by enabling firms to sense opportunities, seize innovations, and transform internal processes. The study recommends that insurance companies strengthen innovative product development, enhance customer-facing digital platforms, and develop systematic market sensing and competitive intelligence capabilities. Insurance companies should also prioritize capability development alongside innovation investments to maximize the performance benefits of business model innovation.