Nexus between Insurance Industry Investments and Economic Growth in Kenya
DOI:
https://doi.org/10.53819/81018102t4386Abstract
Rapid economic growth often boosts revenues, balances fiscal deficits, and improves living standards through technological advancement and a healthy business environment. While banking is widely recognized as a driver of demand-driven growth, the insurance industry, a key part of the financial sector, also plays a crucial role. Insurance penetration the ratio of premiums to GDP reflects its economic contribution. In Kenya, penetration rose slightly in 2022 to 2.3%, still below the global average of 7.2% and ranking third in sub-Saharan Africa. Despite low penetration and a five-year decline, insurance investments grew at 13.3% in 2022, with the sector ranking as the third-largest investor in government domestic debt (7.2%) after banks and pension funds. This study examined how insurance investments affect Kenya’s GDP, focusing on investment properties, government securities, and policy loans. Anchored on endogenous growth theory, it adopted a non-experimental design using secondary data from 2012–2023 sourced from the Insurance Regulatory Authority, World Development Index, Kenya National Bureau of Statistics, and the Central Bank of Kenya. Data was analyzed in EViews, applying diagnostic tests and a Vector Error Correction Model (VECM). Findings showed that government securities significantly stimulate short-term economic growth but have negligible long-term effects. Investment properties have the strongest positive impact on long-term GDP expansion. Policy loans significantly enhance GDP growth in the short term but are statistically insignificant in the long run, with potential indirect benefits through household consumption or informal sector investments. The study recommends that insurers diversify portfolios, reduce reliance on government bonds, and increase allocations to high-return productive assets like real estate. Policy loans should be managed cautiously, balancing returns and risk, to enhance their economic contribution. This diversification could strengthen the sector’s role in driving sustainable economic growth.
Keywords; Insurance Industry Investments, Economic growth, government securities, investment properties and policy loans
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