Effect of organizational factors on financial deepening of the insurance sector in Kenya

Abstract

The study aims to investigate the effect of organizational factors on financial deepening of the insurance sector in Kenya. It seeks to determine the levels of financial deepening in the Kenyan insurance sector, explore the relationship between firm factors and financial deepening, and identify management strategies to enhance financial deepening among insurance firms. Despite many researchers examining financial deepening, their focus has been majorly on commercial banks and other financial institutions and the studies show that insurance companies are facing sustained competition for insurance businesses. The reality is that insurance firms' financial deepening effect differs from that of banks, MFIs, and SACCOs. With the insurance sector growing as an alternative investment vehicle, financial deepening would assist insurance companies survive rising competition from non-bank financial institutions and commercial banks. Drawing upon the Theory of Financial Intermediation and Financial Inclusion Theory, the study’s objectives were to determine the levels of financial deepening, to establish the relationship between corporate governance factors, company characteristics and financial characteristics with financial deepening of insurance firms in Kenya and to identify management strategies to achieve financial deepening. The population consists of 55 insurance firms in Kenya registered with the Association of Kenya Insurers (AKI), making it a census study. The study adopted a quantitative longitudinal research design, utilizing both primary data collected using questionnaires and secondary data from Insurance Industry Annual Reports for the relevant years. Hierarchical multiple regression analysis was used to examine the effect of organizational factors on financial deepening. Findings suggest that organizational factors significantly influence financial deepening in the insurance sector and reliably predict its outcomes. These factors encompass corporate governance, company-specific characteristics, and financial metrics. In terms of management strategies, the study highlights the importance of technology adoption for risk assessment, disclosure of material information to consumers, and the promotion of financial digitalization to enhance access to insurance products. Recommendations stemming from the research include implications for practice, policy formulation, and knowledge enhancement in the insurance sector.