Effects of Commission Payment on Growth of Insurance: The Case of Insurance Firms in Kenya

Authors

  • Sylvester Joseph Ouma The Catholic University of Eastern Africa
  • Dr. Sarah Kimani The Catholic University of Eastern Africa
  • Dr. Thomas Githui The Catholic University of Eastern Africa

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.

 

Author Biographies

Sylvester Joseph Ouma, The Catholic University of Eastern Africa

Postgraduate Student

Dr. Sarah Kimani, The Catholic University of Eastern Africa

Lecturer

Dr. Thomas Githui, The Catholic University of Eastern Africa

Lecturer

References

Association of Kenya Insurers Report (2010): Potential Distribution Channels for Insurance Business in Kenya Executive Summary, SBO Research.

Association of Kenya Insurers. (2010). Insurance Industry Annual Report 2010.

www.akinsure.com

Association of Kenya Insurers. (2012). Insurance Industry Annual Report 2012.

www.akinsure.com

Association of Kenya Insurers. (2016). Insurance Industry Annual Report 2016.

www.akinsure.com

Association of Kenya Insurers. (2017). Insurance Industry Annual Report 2017.

www.akinsure.com

Cherry, K. (2018). The Five Levels of Maslow’s Hierarchy of Needs. How Maslow’s Famous Hierarchy Explains Human Motivation. www.verywellmind.com

Cooper, D.R., & Schindler, P.S., (2011). Business Research Methods (11th ed.). New Delhi-India: McGraw-Hill Publishing, Co. Ltd.

Cuirrin, M. (2007). An Empirical Analysis of the Interrelationships between Motivation and Stress in Computing Industry. Waterford Institute of Technology Repository

Cyert. R, M. & March. J, G, (1963), A behavioral theory of the firm. Englewood Cliffs N I • Prentice-Hall

Dimitrelis, G. (2003). Is Maslow’s Hierarchy of Needs and Concept of Self Actualization Relevant Today? A Cross-cultural Study. University of New Castle-U-Tyne

Donaldson, L. (1990). A Rational Basis for Criticism of Organizational Economics: A Reply to Barney. Academy of Management Review, Vol. 15: 394-401

Doyle, A. (2018). Different Types of Commission Pay. www.thebalance.com

Eisenhardt, K, (1989), Agency theory: An assessment and review, Academy of Management Review, 14: in press.

Engellandt, A. (2014) Incentive Effects of Bonus Payments: Evidence from an International company. IZA Discussion Paper No. 1229

Fama, E., & Jensen, M. C. (1983). Separation of ownership and control. Journal of Law and Economics, 26: 301-325.

Finkle, L. (2011). Motivating Employee Performance through Year End Bonuses. Gala, C. (2010). Critical Overview of Agency Theory. www.freepatentsonline.com

Gitau (2013) Strategies Adopted by Kenyan Insurance Companies to Alleviate Low Insurance.

Gujarati, D. N. (2003).Basic Econometrics. 4th. New York: McGraw-Hill. Journal Of Management Sciences, Vol 1, Issue 1, 43-52.

Gunnarson, A. & Akesson, H. (2014). The Effect of Commission Based Wages: A Case Study of the Real Estate Industry. University of Gothenburg Repository

Hart, R. (2016). The Rise and Fall of Piecework. IZA World of Labor.

Jensen, C & Meckling, H. (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, Journal of Financial Economics, 3:305-360

Kihara (2014) Strategies Adopted By the Insurance Regulatory Authority in Enhancing Growth in the Insurance Industry in Kenya.

Kiragu, S. M. (2014). Assessment of challenges facing insurance companies in building competitive advantage in Kenya: A survey of insurance firms. International Journal of Social Sciences and Entrepreneurship, 1 (11), 467-490.

Liargovas, P., & Skandalis, K. (2008). Factor affecting firms financial performance, The Case of Greece, University of Peloponnese.

Mahfoudh, O. (2013). Effect of selected firm characteristics on financial performance of firms listed in the agricultural sector at the Nairobi securities exchange. Unpublished Thesis University of Nairobi: Kenya

Majumdar, S. (2013). The Impact of Size and Age on Firm- Level Performance, Some Evidence from India, Review of Industrial Organization, 12, 231-241.

Maniagi G. M., & Mwalati S., (2015). Capital Structure and Performance: Evidence From Listed Non-Financial Firms on Nairobi Securities Exchange (NSE) Kenya: International Journal for Management Science and Technology, 1 (2) 1.

Muchai, P. (2012). Performance Based Compensation Practices among Commercial Banks in Kenya. University of Nairobi Repository

Mwita, J. (2002). The Role of Motivation in Performance Management: The Case of Performance Related Pay Scheme in British Local Authorities. University of Nairobi

Njihia, E. N. (2014). The effect of firm size on financial performance of pension schemes in Kenya

(Doctoral dissertation, University of Nairobi).

Nyberg, A., Pieper, J. & Trevor, C. (2016). Pay-for-Performance is Effect on Future Employee Performance. Integrating Psychological and Economic Principles toward a Contingency Perspective. Sage Journals

Ojeleye, C. (2017). The Impact of Remuneration on Employees’ Performance (A Case Study of Abdul Gusau Polytechnic Talata-Mafara and State College of Education Maru, Zamfara State). Arabian Journal of Business and Management Review (Nigerian Chapter), 4(2).

Olawale, S., Ilo, M. & Lawal, K. (2017). The Effect of Firm Size on Performance of Firms in Nigeria. The IEB International Journal of Finance, 15:2-21

Pervan, M., & Višić, J. (2012). Influence of firm size on its business success. Croatian Operational Research Review, 3(1), 213-223.

Robbins, S. (2005). Organizational Behaviour, 11th Edition, San Diego State University: Pearson Education International, Prentice Hall

Rowan, B. (2009). Organizational structure and the institutional environment: The case of public schools. Administrative Science Quarterly, 27: 259-279.

Seligman M (2010), Learned optimism: how to change your mind and your life, Simon & Schuster (Pocket Books): New York

Simiyu, R.S. (2008) A Survey of Techniques of Credit Risk Management in Micro-Finance Institutions in Kenya, Unpublished MBA Project, University of Nairobi

Taani, K (2012). Impact of working capital management policy and financial leverage on financial performance: Evidence from Amman Stock Exchange listed companies International Journal of management sciences and Business Research 1 (8): 10 – 17.

Tipuric, D. (2008). Korporatiuno Uprauljanje, Sinergija, 953-6895-07-02, Zagreb

Umar, G. (2010) The Influence of Compensation on Performance of Sales Representatives of insurance Companies Based in Ilorin –Nigeria An International Multi-Disciplinary Journal, Ethiopia Vol. 4 (3b) July, 2010

Vroom, V. (1964). Work and Motivation, New York: Wiley

Wachira Lydia (2015). Assessment of attractiveness of the Insurance Industry, University of Nairobi Repository

Waiyaki, E. (2017). Effect of Motivation on Employee Performance: A Case of Pam Golding Properties Limited, United States International University Repository

Downloads

Published

2018-08-19

How to Cite

Ouma, S. J., Kimani, D. S., & Githui, D. T. (2018). Effects of Commission Payment on Growth of Insurance: The Case of Insurance Firms in Kenya. Journal of Marketing and Communication, 1(2), 22–41. Retrieved from https://stratfordjournals.org/journals/index.php/journal-of-marketing/article/view/168

Issue

Section

Articles