The relationship between board diversity and financial performance of insurance underwriters in Kenya

Abstract

The purpose of this study is to investigate the relationship between board diversity and the financial performance of insurance underwriters in Kenya. The importance of age, gender and ethnicity as components of board diversity are raising the issues of their effect on the performance of the firm. Board diversity on the other hand, is a component of corporate governance, an area which has become critical on the success of firms in relation to their financial performance. The insurance industry is an important component of the financial sector of the economy because of its financial intermediation role. They give protection to policyholders by guaranteeing the safety of their investments against accident and thereby promoting business activities in the country. As a result of the peculiar characteristics of the insurance industry and the significant contributions that is making to the development of the economy coupled with the non existence of such study, there is a strong ground to conduct this research. The secondary data was collected from the Nairobi Securities Exchange for listed insurance underwrites and from the individual companies for none listed underwriters. Pearson correlation was used to measure the degree of association between variables under consideration, the panel data regression was used to estimate the relationship between board diversity and financial performance. Furthermore, in examining if board diversity variables are significantly different from that of financial performance, the Chi-Square was used. The findings show that a diversified board is positively associated with the financial performance of insurance underwriters in Kenya. The insurance underwriters are therefore encouraged to consider constituting diversified boards as part of good corporate governance practices to improve their financial performance. Most importantly the regulatory authorities must ensure that insurance underwriters’ boards are well constituted in terms of gender, age and ethnicity to help the growth and development of the insurance industry.