Factors That Influence Diversification Strategies of Insurance Companies in Kenya

Abstract

Diversification involves the entry of a company into new lines of activity through a process of internal development or through acquisition, which entails changes in its administrative structure, system or other management procedures. Many firms use diversification as a way to reduce risk by investing in a variety of assets or business ventures. Diversification can offer companies many advantages such as cost reduction, reduction in asset depreciation and risk reduction. Other advantages involve synergies or the expansion of business, creation and improvement of long-term strategic assets and long-term sustainability and regional development through resource diversification. The objective of the study was to determine the factors that influence diversification strategies adopted by mainstream insurance companies in Kenya. This study adopted a cross-sectional survey research design. The study will target all insurance companies in Kenya and semi structured questionnaires were used to collect primary data from top managers in charge of marketing from each of the insurance companies, Data analysis was done by use of descriptive statistics such as frequencies, percentages, mean scores and standard deviations. The findings of the study revealed that diversification by mainstream insurance companies in Kenya is influenced by availability of finances, government regulatory policies, attractiveness of the industry and/or market, entry costs in insurance industry, access to distribution channels for insurance services and availability of workforce resources, business risk due to uncertainty in the new markets, limited knowledge of the new services, lack of human resource to facilitate investment in new service or market, increased competition due to new entrants in the insurance industry, change in information communication technology, difficulty in determination of the present or future value of the firm and difficulty in making diversification. The study recommends that insurance companies should invest in feasibility studies aimed at analyzing the factors that influence diversification strategies and conduct regular monitoring and evaluation intended to measure the effectiveness of the adopted diversification strategies.