The relationship betweenv value chain and competitive advantage in the Insurance Industry in Kenya

Abstract

The introduction of a liberalized economy and the privatization process in the mid to late eighties and nineties in the Kenyan economy resulted in intense competition from both new and existing industry players. These changes had a significant impact in shaping the levels and intensity of competition among insurance companies in the Kenya economy and only those capable of formulating and implementing effective competitive strategies in order to retain or gain competitive advantage would continue to achieve the desired growth,profitability and improved shareholder value. The intense competition resulted in companies resorting to undercutting and price wars as the main strategy to gain and retain customers. The insurance companies needed to look for potential areas to develop sustainable competitive advantage by employing other effective competitive strategies through the value chain activities to enable them achieve their objectives without only resorting to price cutting.The objective of the study was to identify the relationship between value chain activities and competitive advantage in primary insurance companies in the insurance industry in Kenya. The population of the study consisted of the top ten and the bottom ten insurance underwriting companies in Kenya based on the declared profitability as per the 2006 published financial results presented and published by the industry regulator, Insurance Regulatory Authority (IRA). It has been established from this study that there is a relationship between value chain and competitive advantage in the insurance industry in Kenya among primary insurance companies. Insurance firms use value chain analysis to develop competitive advantage over other competing firms, thereby reporting better cost management and higher profits