Assessing the Effect of Risk Management Practices on Financial Performance of Insurance Companies in Ghana

Abstract

The purpose of the study was to assess the effect of risk management practices on financial performance of Insurance Companies in Ghana. The study adopted a survey research design and the target population was various managers whose activities are related to risk management in the three life and three non-life insurance companies. The sample size was 60. Respondents were selected using purposive and convenience sampling technique. A structured questionnaire was used to collect the relevant data. Findings reveal that risk identification and mitigation influence financial performance most. The regression coefficient of risk identification and financial performance is positive and significant. The regression coefficient of risk mitigation is positive and significant. The study shows that risk monitoring significantly influences financial performance though statistically insignificant. The study also reveals that the regression model was significant. The findings showed that all the three risk management practices were significant in influencing financial performance and therefore the conclusion of this study is that insurance companies should adopt in their risk management, efforts that bring together all the practices that were focused in this study. The study recommends that insurance companies should (1) adopt appropriate product pricing in line with estimated risk which would eventually increase profitability, (2) embrace the use of risk identification practices to help them in risk management by ensuring that opportunities are maximized and increase financial performance of the firms through setting premiums commensurate to getting high profits once they have identified frequency and severity of given risks, and (3) also structure their products or set competitive premiums to curb competition faced from rivalries, hence avoid losing customers to those competitors.