Financial Deepening of Insurance and Economic Growth in Kenya

Abstract

The depth of financial sector has been found to promote economic growth. The indemnification and risk pooling properties of insurance facilitate commercial transactions and provision of credit by mitigating losses as well as the measuring and management of non diversifiable risk thus promoting economic activities. Study was set out to examine the relationship between economic growth and insurance penetration in Kenya. The study employed a causal study design. Secondary data was obtained from published reports of Insurance Regulatory Authority (IRA) and Central Bureau of Statistics (CBS) specifically the Annual Insurance Reports and Economic Surveys respectively. The target population was all the 45 Insurance companies registered for operation in Kenya. The study covered six years from 2003 to 2008. Insurance penetration ratio increased by 0.10% to stand at 2.7% in 2008. The long term business accounted for 0.9% and general business accounted for 1.8%. According to the regression equation established, taking insurance penetration factor into account constant at zero, economic growth will still be experienced at 8.395. The data findings analyzed also shows that taking all other independent variables at zero, a unit increase in insurance penetration ratio will lead to 1.375 increase in economic growth rate by 1.375.