The Effect of Financial Innovation on Financial Performance of Insurance Companies in Kenya

Abstract

Many firms especially in the insurance industry make use of financial innovation strategies to keep pace with changing environments. This study, involved determining the causal effect of financial innovation (the independent variable) to financial performance (dependent variable) of insurance companies in Kenya, financial performance was measured by Return on Assets. For this study the 45 insurance companies and 2 Re-insurance Companies operating in Kenya as at 31st December 2012 were used. Data was drawn from a period of five (5) years that is 2008-2012. The primary data was collected through questionnaires and where appropriate the secondary data was obtained from published information. The data was analyzed using descriptive and inferential statistics to generate descriptive, regression of coefficients as well as to determine the fitness of the model. Results indicate that the relationship between new products and financial performance is insignificant. Results reveal that operation processes and system innovations are statistically significant in explaining return on assets of insurance companies. One of the recommendation by the study is that the Government should be on the forefront to encourage on innovative ideas and also come up with structures to assist the sector in coming up with sustainable innovations through the various regulatory bodies. Some of the Impact of the study results will be Kenya insurance companies enhancing their operation processes and system innovation as they show a statistical significant.