A survey on corporate governance practices in insurance industry in Kenya.

Abstract

This study was carried out to determine the corporate governance practices III the insurance industry in Kenya. The objective arose from the concern of the recent collapse of four insurance companies since year 2000. Bad corporate governance practices were mentioned as the possible causes of the collapse of the four companies. The population of interest consisted of all the 42 registered insurance companies III Kenya as at 315t December 2006. The data was collected through questionnaire which was administered to the respondents on a drop-and-pick-Iater basis. The data collected was analysed using content analysis method and presented in form of frequency distribution tables, bar graphs and pie charts. The study revealed some. weaknesses in the corporate governance among the insurance companies in Kenya. The study found that 90% of the companies have top managers who were also directors and shareholders which heightened conflicts of interest. The study revealed that only 40% of the respondents have induction programmes for new directors while only 55% have training programmes for directors. This resulted in lowering effective contributions of the directors in running the insurance compames. The study showed that only 95% of the insurance companies comply 100% with the rules and regulations in the insurance Act. Lack of full compliance with the insurance Act weakens their accountability to the public and regulators. The study indicated that 10% of the companies do not have strong and independent internal audit functions, which weakens internal control systems in these companies.

The study concluded that steps should be taken to enhance good corporate governance practices in the insurance industry in Kenya. Such steps include: use of experience and track record in selection and appointment of directors; conduction of induction and training programmes to directors; separation of ownership and management; full enforcement of the rules and regulations m the insurance Act by the regulators; establishment of strong and independent internal audit functions in all insurance companies.