High operating costs and complexity of risks are impacting negatively on corporations’ profitability despite practicing corporate governance. Corporate governance requires that the management develops frameworks, structures, and guidance to manage enterprise risk. The traditional methods of mitigating risk have relied heavily on insurance as the only mean of protecting enterprise against risks. The traditional methods are now becoming too expensive for corporations and are not able to cover all risk exposures. This problem forms the basis of the research problem in this study. The purpose and objective of this study are to establish alternative methods of mitigating risks in corporations and develop models for computing benefits accruing to the corporations as a result of using the new alternative method. As such, this study identifies financial assets, sinking fund, ploughing back of premiums as possible investments where forgone insurance premiums can be invested and develop a model for computing earnings resulting from such investments. The study applied Actuarial Theory, Financial Theory of Risk Transfer, Modigliani and Miller Theory and Agency Theory, and used both primary and secondary data collected from National Transport and Safety Authority, Kenya and Registrar of Motor vehicles, Kenya target populations, namely number of countries in Europe and North America and the number of insurance companies in Kenya. The study was of significance to the business communities, scholars and researchers, the government and the general public by: (1) providing a better understanding for designing and formulating risk management policy in their organizations, (2) providing mechanism for investing the forgone insurance premium and (3) strengthening knowledge and further research in the area of mitigation. In summary, this study is tenable and a better alternative to ever-increasing insurance premiums.
Raude John O. Messo
Department of Business Management, School of Business and Economics, Masinde Muliro University of Science and Technology, Kenya.