Effects of Commission Payment on Growth of Insurance: The Case of Insurance Firms in Kenya
Abstract
Commission payment is one of the simplest forms of incentive in the insurance industry. The insurance industry has experienced high competition for market share that has compelled insurance firms to hire more skilled and experienced salespersons to promote their products. Consequently, this has led to the payment of high commission packages and bonuses to the salespersons which have become unsustainable for the growth of insurance firms. The battle for salespersons in search of growth in the crowded market is egging insurance firms to warn of losses given that the bulk of the players is using commission payment as an arsenal for insurance market share growth. The general objective of this study was to determine the effects of commission payment on the growth of insurance firms in Kenya; specific objectives are to determine the effect of straight commission payment on the growth of insurance firms in Kenya. To determine the effect of a retainer plus commission payment on the growth of insurance firms in Kenya, to determine the effect of residual commission payment on the growth of insurance firms in Kenya, and to determine the moderating effect of firm size on the relationship between commission payment and growth of insurance firms in Kenya. A descriptive research design was employed in this study. The study conducted a census of 45 insurance firms regulated by the Insurance Regulatory Authority. The years covered were from 2012-2016. Secondary data was used for analysis. The study employed a dynamic panel data regression model to test the relationship between the variables. Regression results showed that the straight commission rate had a negative coefficient of (-0.002, 0.000), retainer plus commission payment had a positive coefficient of (0.576955, 0.0102), residual commission rate had a negative coefficient of (-0.220136, 0.1650) and firm size had a positive coefficient of (0.676, 0.010). The study concluded that straight commission rate, retainer plus commission, residual commission rate and firm size affect the growth of insurance firms. The study, therefore, recommends that the management of insurance firms should moderate the commission payments in consideration of the firm's ability and individual agent performance. Finally, the study recommends that the management should adopt expansion strategies in the market share as larger insurance firms enjoy economies of scale and are thus able to maintain growth.
Keywords: Commission Payment, Insurance Growth & Insurance Firms in Kenya.
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