Factors Affecting Non-Financial Performance of Insurance Companies in Kenya: A Case of Aar Insurance Company in Nairobi

A Research Project Report Submitted to the Chandaria School of Business in partial fulfillment of the Requirement for the Degree of Master of Business Administration (MBA)The general purpose of the study was to investigate the factors influencing the performance of insurance companies in Kenya. The study was guided by below research questions; how does a firm’s size affect performance of insurance companies in Kenya? How does a firm’s structure affect performance of insurance companies in Kenya? How does leadership affect performance of insurance companies in Kenya? The primary population of study selected for this research was limited to AAR Insurance Company of Kenya Limited. The descriptive research design was selected for this study as it is concerned with finding out who, what, where, when or how much and also tries to measure the types of activities; how often, when, where and by whom. Stratified random sampling was used to generate the sample size. In stratified random sampling, the population is divided into two or more strata, when the population is heterogeneous with regard to the characteristics or variables under study. The data collection method was based on a structured approach due to the target population and their nature of work. The examination information was broken down using Microsoft excel and Statistical Package for Social Sciences (SPSS) program and presented using tables and figures to give a clear picture of the research findings at a glance. To ensure ease in analysis, the questionnaires was coded accordingly to each variable of the study and entered into the SPSS program. The quantitative tools employed were descriptive statistics which included measures of central tendencies. These tools of analysis used to determine views of commonality and deviations from commonality. Correlation was another useful statistic tool that described the degree of relationship between the variables used. The output after analysis were presented using frequency tables, graphic presentations and inferential statistics outputs. The study revealed that AAR had not reported high loss ratios, and the organization did not rely on investment income to act as a cushion for its underwriting results. Firm size is an important determinant of an insurance company’s performance, and the control of managers pursuing self-interested goals has the ability to alter profit maximization as the firm’s objective function. The study indicated that large firms enjoy economies of scale and their average cost of production is low ensuring efficient operational activities, that they face less difficulty in getting access to credit facilities from financial institutions, thus achieve greater strategic diversification. The study showed that organizational structure affects the performance of insurance companies through innovation and organizational learning. AAR has a high trust environment that produces accurate results in the least amount of time and its organizational structures create vertical and horizontal structures that facilitate communication. The study revealed that AAR’s organizational structure is not complex and facilitates as well as encourages employee creativity, and the organizational controls include: target setting, measuring or monitoring, use of feedback, rules, standards, and internal procedures. The study revealed that leadership style in an organization is significant in enhancing or retarding the interest and commitment of employees, and it is critical in encouraging employees towards a common goal. Leadership in AAR focuses on the development of employees and their needs, and it determines the organizational values, culture, change tolerance and employee motivation. AAR’s leadership is seen as a potent source of the development and sustenance of the organization’s competitive advantage. The study also concludes that large firms are more stable and mature, therefore generate greater sales because of their great production capacity. AAR’s organizational structure is not complex and facilitates as well as encourages employee creativity, and the organizational controls include: target setting, measuring or monitoring, use of feedback, rules, standards, and internal procedures. AAR leaders demonstrate concern, care and respect for employees, thus increasing employees’ interest in their work facilitating better performance. The study recommends AAR management to increase the organization’s assets because the study has revealed that firm size is significant to insurance company performance. Increase of the organization’s assets will improve the company’s competitive power, which will facilitate its competitive edge in highly competitive markets