AGENCY COSTS AND FINANCIAL PERFORMANCE OF LICENSED INSURERS IN KENYA
AGENCY COSTS AND FINANCIAL PERFORMANCE OF LICENSED INSURERS IN KENYA
Bokayo Dulacha Elema - Student, Jomo Kenyatta University of Agriculture and Technology, Kenya
Dr. Joshua Matanda (Phd) - Lecturer, Jomo Kenyatta University of Agriculture and Technology, Kenya
Dr Charles Roche (Phd) - Lecturer, Jomo Kenyatta University of Agriculture and Technology, Kenya
ABSTRACT
Even though the insurance industry is a key contributor to the provision of financial protection to households and businesses, it is experiencing financial shocks arising from incessant underwriting losses and rising cases of fraud among insurance employees that are costing policyholders billions of monies threatening their financial stability. The specific aims of this study were to assess the influence of monitoring costs, and bonding costs on financial performance of insurance companies in Kenya. The study adopted an explanatory study design, and its target population consisted of 56 finance managers from all licensed insurance companies. It used census sampling method to sample all the 56 insurance companies. The study relied mostly on secondary data collected using a secondary data collection instrument. Moreover, the data was analyzed using Stata statistical application version 17. The data was analyzed using mean, standard deviation and presented on tables and charts. The findings obtained showed that monitoring costs had a positively significant influence on financial performance estimated by both ROE and ROA. The results indicated that bonding costs had a negative and significant influence on financial performance measured by ROE. Moreover, the findings indicated that bonding costs had a negative and significant influence on financial performance as estimated using ROA. The study recommended the introduction of a management incentives and welfare schemes that will provide both financial and non-financial incentives to management in an effort to motivate them to act at the best interest of the shareholders; a situation likely to reduce agency costs and optimize financial performance and shareholders value.
