The Determinants of regulatory compliance among insurance companies in Kenya

Abstract

The increasing incidence of fines and penalties imposed on insurance companies in Kenya for non-compliance has raised concerns about their financial stability and ability to meet client obligations. This study investigates the key determinants of regulatory compliance within Kenya's insurance sector, focusing on ownership structure, board composition, and firm size. While prior studies have shown mixed results on the influence of these factors, this research adds clarity by examining them within the Kenyan context. Guided by agency theory and stakeholder theory, the study adopted a positivist philosophical stance and employed an explanatory research design based on secondary data from the Insurance Regulatory Authority (IRA) and published financial records. The analysis revealed that ownership structure and board composition significantly influence regulatory compliance among insurance companies. In contrast, firm size had no notable effect. Additional factors such as company age, leverage, and the range of insurance classes offered also played varying roles in compliance behavior. The findings underscore the critical role of ownership concentration and board independence in enhancing regulatory compliance within the Kenyan insurance sector. The study reveals that higher ownership concentration fosters greater oversight and accountability, while independent boards are better positioned to ensure adherence to regulatory standards. Based on these findings, insurance firms are encouraged to optimize their ownership structures and strengthen board independence to improve compliance. Policymakers are urged to introduce incentives for concentrated ownership and to enhance regulations promoting board independence, ensuring stronger corporate governance across the sector. This study contributes to the broader discourse on regulatory compliance by emphasizing the significance of governance frameworks in shaping compliance behavior within the insurance industry.

Keywords: Regulatory compliance, Insurance companies, Corporate governance, Ownership structure, Board composition, Leverage, Kenya, Agency theory, Stakeholder theory.