Effect of Premiums on Financial Performance of Insurance Companies in Nairobi County, Kenya

Abstract

The total number of insurance claims has sharply increased, signifying a challenge in the settlement of claims against declining net earnings in insurance companies. The purpose of the study was to examine the effect of premiums on the financial performance of insurance companies in Nairobi County, Kenya. The main research design used in this study was descriptive. The target population included 59 insurance companies, with 59 general managers and 1,367 senior-level officers as respondents. The simple random sampling method was used as the sampling technique. The managers were interviewed while a self-administered questionnaire was issued to the officers. A pilot study was conducted in 2 randomly sampled insurance companies in Meru County. The participants were 2 general managers and 41 officers. The study assessed content and criterion validity. Cronbach's alpha was a method used to measure reliability. Completed questionnaires were coded and analyzed using SPSS version 27, employing descriptive statistics (frequencies, percentages, and means), simple linear regression, and multiple regression, with results presented in tables. Premiums had a positive and significant influence on the financial performance of insurance companies in Nairobi County, according to the research. According to the descriptive results, most participants agreed that premium management was a key driver of good financial performance. Regression analysis indicated a significant positive association between premiums and financial performance, meaning that companies that effectively managed their premiums were more likely to perform better financially. In conclusion, premiums were identified as a major determinant of insurance companies' financial performance in Nairobi County. Properly pricing premiums, underwriting, and collecting premiums led to effective earnings and improved the financial position of insurance companies. It is advisable for insurance company management to continually analyze and implement premium pricing methods based on current market trends, risks, and the organization's financial needs.