Business Model Innovation and Organizational Performance of Insurance Firms in Kenya

Abstract

A 2023 report from the (IRA) highlighted that the insurance sector’s Gross Written Premium (GWP) has been growing steadily at an annual rate of 8%. However, profitability has not kept pace, primarily due to increasing operational costs and claims inflation, particularly in health and motor insurance. Although there has been an increase in life insurance premiums and the adoption of digital products, the sector struggles to align profitability with premium growth, which limits its potential contribution to the broader economy. The purpose of the study was to establish the effect of business model innovation on the performance of insurance firms in Kenya. Specifically, the study aimed to, establish the effect of value creation innovation, value proposition innovation, and value capture innovation on performance of insurance firms in Kenya and determine the moderating effect of organizational culture on the relationship between business model innovation and the performance of insurance firms in Kenya. The study was guided by Resource-Based View, Disruptive innovation Theory, Dynamic Capabilities Theory, and Institutional Theory. A combination of descriptive and correlational research designs was employed. The study focused on all 52 insurance companies in Kenya which was the unit of analysis. General Managers, underwriting managers, claims managers, and marketing managers from the insurance firms were the unit of observation totaling to 156 participants. Given the small size of the population, a census approach was utilized. Primary data was collected through a structured questionnaire, with a pre-test conducted among 16 respondents from the insurance sector who were not included in the main study. The validity of the questionnaire was assessed using face validity, and its reliability will be measured using Cronbach’s Alpha, aiming for a threshold of 0.7. Data analysis included descriptive statistics to summarize data trends and inferential statistics (Pearson’s correlation and multiple linear regression) to examine relationships and effects among variables. The findings showed that value creation innovation has a positive and significant effect on organizational performance of insurance firms in Kenya (β=0.294, p=0.001). The findings also showed that value preposition innovation has a positive and significant effect on organizational performance of insurance firms in Kenya (β=0.329, p=0.000). It was also found that value capture innovation has a positive and significant effect on the organizational performance of insurance firms in Kenya (β=0.229, p=0.000). Based on the findings, it was concluded that business model innovation positively influences the performance of insurance firms in Kenya, with value creation, proposition, and capture innovations enhancing customer retention, market share, and revenue. A supportive organizational culture further strengthens this effect by fostering adaptability, proactivity, and calculated risk-taking, which enable effective implementation of innovative strategies. The study recommends that insurance firms enhance value creation, proposition, and capture through personalized services, reward systems, and data-driven pricing. Adoption of AI and digital tools should be prioritized to streamline operations and improve customer experience. A culture of adaptability and strategic risk-taking should be fostered to strengthen innovation impact, while regulators should support policies that promote digital and customer-centric business models.