Abstract:
Over the past decade, insurance and banking firms have undergone transformation in the
manner they offer their products and services in a bid to remain relevant in the insurance
industry. Kenya, just like many developing countries is still at the infancy stages of absolute
insurance cover. Records indicate that majority of Kenyans are presently not under any
insurance cover. The study assessed the effect of financial factors on insurance penetration in
Nakuru town, Kenya. The financial factors examined included administrative costs and agency
costs. Blau administrative cost theory, agency theory, and S-curve theory guided the study. This
study adopted a cross-sectional survey research design. The study focused on the 417
employees working with insurance firms in Nakuru town. A sample of 61 respondents was
selected using stratified random sampling method. The study used a self-administered semistructured
questionnaire to collect data. The research questionnaire was pilot tested. Data
analysis constituted both descriptive statistics and inferential statistics. Descriptive statistics
included means, modes and standard deviations. Inferential statistics included Pearson’s
Product Moment Correlation and multiple regression analysis. Findings were presented in
tables. The study found that all the financial factors investigated had significant relationship with
insurance penetration. The study concluded that insurance firms incur administrative and
agency costs that hamper insurance penetration. The study recommended that insurance firms
need to arrest escalating costs associated with administrative functions and agency.
