Financial Determinants of Demand for Micro Insurance Services in the Insurance Industry in Kenya

Abstract

. Insurance firms and the authorities have become aware of the need to include low income earners in the insurance industry. The research examined the financial determinants of demand for micro insurance services in the insurance industry in Kenya. The study had four objectives which were to determine the effect of risk exposure on the demand for micro insurance, to establish the effect of price on the demand for micro insurance services, to establish the effect of credit accessibility on the demand for micro insurance services and to evaluate the effect of income level on the demand for micro insurance services. The study was based on the existing theories, more so the demand and expected utility theories. Stratified random sampling method was applied in selecting the sample for the study. The research design used in the study was a cross sectional survey research design which assessed data for the year 2015. The population of interest was 294 insurance service providers. was used and 170 firms were selected. The data collection instrument was a questionnaire administered to employees of the firms in key management position or their designated backups. Cronbach alpha was used to test reliability of the instrument while factor analysis was used in the test of construct validity. The analysis of data was by use of descriptive and inferential statistics such as measure of central tendency, standard deviation, correlation by use of Pearson correlations and a regression model was fitted to determine the influence of the determinants on the demand for micro insurance. The study found that all the determinants studied; risk exposure, price, credit accessibility and income level had significant influences with coefficients 0.341, -0.44, 0.491 and 0.643 respectively. All the coefficients were found to be significant at 0.05 level. The moderating variable was found to have significant influence on the relationship between the determinants and the demand for micro insurance. Analysis of data was by descriptive and inferential statistics using Statistical Packages for Social Sciences (SPSS). Analysis of variance (ANOVA) was used to establish the level of statistical significance of difference between the observed and expected values. A moderated multiple regression was used to estimate the model coefficients while Pearson coefficient of correlation was used to establish the strength of relationship among variables, test of hypothesis was also carried out. The study concluded that micro insurance demand is affected by financial factors and that the potential is yet to be exploited. The limitation of the study focused on providers rather than users of insurance services whereas users could have provided more insight into the problem. The study recommended that, awareness and education be conducted to the intended mass; flexible and convenience payment option be availed; easy access to credit; the regulator to put in place a framework for micro insurance and the government to offer subsidies and incentives towards micro insurance services. The study is meant to benefit the micro insurance service providers, policy makers, the industry regulator and the government in coming up with strategies, policies and innovative products to tap the demand in the low end market.