evaluation of the level of enterprise risk management adoption and maturity of insurance ...

116 Pages·2016·1.23 MB·English

EVALUATION OF THE LEVEL OF ENTERPRISE RISK
MANAGEMENT ADOPTION AND MATURITY OF
INSURANCE COMPANIES IN KENYA

BY

CAROLINE NJAGI

UNITED STATES INTERNATIONAL UNIVERSITY-
AFRICA

FALL 2015
EVALUATION OF THE LEVEL OF ENTERPRISE RISK
MANAGEMENT ADOPTION AND MATURITY OF
INSURANCE COMPANIES IN KENYA

BY
CAROLINE NJAGI

A Project Report Submitted To the School of Business in Partial
Fulfillment of the Requirement for the Degree of Masters in Business
Administration (MBA)

UNITED STATES INTERNATIONAL UNIVERSITY-
AFRICA

FALL 2015
DECLARATION
I, the undersigned, declare that this is my original work and has not been submitted to any
other college, institution or university other than the United States International
University in Nairobi for academic credit.

Signed: ________________________ Date: _________________________
Caroline Njagi (ID 641706)

This project has been presented for examination with my approval as the appointed
supervisor.

Signed: ________________________ Date: _________________________
Dr. Amos Njuguna

Signed: _______________________ Date: _________________________
Dean, Chandaria School of Business

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ABSTRACT
This study has evaluated the frameworks adopted by insurance companies in Kenya in the
implementation of Enterprise Risk Management (ERM) process, and then assessed the
maturity, challenges and strategies in the implementation of this process. This study was
guided by the following research questions: Which ERM frameworks have been
implemented by insurance firms in Kenya?At what level of maturity are the ERM
programs? What are the organization challenges in ERM programs implementations? and
What strategies can the companies put in place in order to achieve the necessary level of
maturity?
The research design adopted for the study was descriptive research. The researcher
conducted a survey of the 49 insurance companies of Kenya to encapsulate the ERM
frameworks in usein the adoption of ERM and the level of maturity. A sample of 196
respondents was selected from a population of 245 respondents.The study used
quantitative and qualitative methods of data analysis by generatingdescriptive statistics
and correlationanalysis.The results were presented using tables and pie charts. Similarly,
qualitative data was summarized and categorized according to common themes and
presented in continuous prose form.
The study established thatISO 31000: 2009, Risk Management - Principles and
Guidelines is the framework most used as a benchmark for implementation of ERM
process. It is the most appealing as it is the only standard intended to provide step by step
guidance on the nature of the risk management process and how to implement it
holistically and methodologically. The insurance companies are at a discretion to choose
the framework to use as there are many international frameworks in place. The
framework chosen will not influence the level of maturity and therefore the framework
will only sever as a guide and benchmark. To reach maturity other factors will come into
play such as the level of commitment of the management and board to risk management,
availing budgets to implement risk management, clear communication of roles and
responsibilities in risk management, linking risk information to strategic decision making,
embodiment of ERM in organizational culture and full adherence to the risk management
framework.
The study found that the current enterprise risk management maturity level of the
insurance industry in Kenya is at Tier 3 ―Risk Normalized‖ level with 69.9%. The
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recommended level of risk management maturity is Tier 5 ―Risk Optimised‖ level. At
Tier 5 the risk management process starts contributing significantly to the success of the
organization. To be attain Tier 5, the insurance companies will need to ensure the risk
management process is optimized and fully embedded in corporate planning, capital
allocation and operational decision making.
The study also found that that organizational related challenges hindered implementation
of mature ERM programs. Results revealed that inadequate application of the risk
management framework, ambiguity in roles and responsibilities in risk management,
complexities in risk measurement,lack of embodiment of ERM in organizational culture,
difficulty in risk quantification, linking risk information to strategic decision making,
ensuring that all decisions remain within the organization‘s risk tolerance, proactively
identifying current and emerging risks, cost and budgetary constraints, misalignment of
the risk and business operating models, risk management not seen as a priority by top
management and inadequate information to make risk-based decisionshindered
implementation of mature ERM frameworks among insurance firms in Kenya. The
findings imply that organization related challenges have a significant effect on ERM
maturity.
Results findings also indicated that better organizational strategies help improve
implementation of mature ERM programs. It was found that building a strong risk
culture, engaging consultants,building a dedicated ERM function,committed board of
directors and top management, developing risk appetite statement,appointment of a Chief
Risk Officer (CRO) and availing ERM budgets improved the implementation of mature
ERM programs.

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COPYRIGHT
No part of this project may be produced or transmitted in any form or by any means,
electronic, magnetic tape or mechanical including photocopying, recording of any
information, storage and retrieval systems without prior written permission from the
author.
© 2015 by Caroline Njagi

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ACKNOWLEDGEMENT
The completion of this project required a lot of work and dedication. The completion
could not have been possible in the absence of support of few individuals and
organizations. Therefore I would like to extend my sincere gratitude to all of them. I
express my gratitude toward my supervisor, family, friends and also respondents for their
kind co-operation and encouragement which helped me in completion of this project.

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DEDICATION
I dedicate this research project to my beloved parents and family members.

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TABLE OF CONTENTS
DECLARATION ........................................................................................................... ii
ABSTRACT .................................................................................................................. iii
COPYRIGHT ................................................................................................................ v
ACKNOWLEDGEMENT ........................................................................................... vi
DEDICATION ............................................................................................................. vii
TABLE OF CONTENTS ........................................................................................... viii
LIST OF FIGURES ..................................................................................................... xi
LIST OF TABLES ...................................................................................................... xii
ABBREVIATIONS ..................................................................................................... xv

CHAPTER ONE............................................................................................................ 1
1.0 INTRODUCTION ................................................................................................... 1
1.1 Background of the Study ........................................................................................... 1
1.2 Statement of the Problem ........................................................................................... 5
1.3 Purpose of the Study .................................................................................................. 6
1.4Research Questions .................................................................................................... 6
1.5 Justification of the Study ........................................................................................... 6
1.6 Scope of the Study ..................................................................................................... 7
1.7Definition of Terms .................................................................................................... 7
1.8 Chapter Summary ...................................................................................................... 7

CHAPTER TWO .......................................................................................................... 9
2.0 LITERATURE REVIEW ....................................................................................... 9
2.1 Introduction ............................................................................................................... 9
2.2 Enterprise Risk Managements Frameworks ............................................................... 9
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2.3 Levels of Enterprise Risk Management Maturity ..................................................... 15
2.4 Challenges in Implementation of Enterprise Risk Management ................................ 19
2.5 Strategies in Implementation of Enterprise Risk Management.................................. 24
2.6 Chapter Summary .................................................................................................... 30

CHAPTER THREE .................................................................................................... 31
3.0 RESEARCH METHODOLOGY .......................................................................... 31
3.1 Introduction ............................................................................................................. 31
3.2 Research Design ...................................................................................................... 31
3.3 Population and Sampling Design ............................................................................. 31
3.4 Data Collection Methods ......................................................................................... 33
3.5 Research Procedures ................................................................................................ 33
3.6 Data Analysis Methods ............................................................................................ 34
3.7 Chapter Summary .................................................................................................... 34

CHAPTER FOUR ....................................................................................................... 36
4.0 RESULTS PRESENTATION AND DISCUSION ............................................... 36
4.1 Data Analysis .......................................................................................................... 36
4.2 Response Rate ......................................................................................................... 36
4.3 Demographic Characteristics ................................................................................... 36
4.4 Enterprise Risk Management Framework ................................................................ 40
4.5 Level of Maturity of ERM Programs ....................................................................... 41
4.6 Challenges of Enterprise Risk Management (ERM) Implementation ........................ 48
4.7 Strategies of Enterprise Risk Management (ERM) Implementation .......................... 62

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