Competition in the Financial Services Sector: A Case of Kenyan Annuities Market

Amos Gitau Njuguna


Competition in the financial services sector influences information, allocation and cost efficiency. The annuity market segment of insurance companies is particularly important as it is characterized by “entry and permanent lock in” of consumers to the firms thus creating permanent contractual claims. This study examines the annuity industry in Kenya using the Structure Conduct Performance (SCP) paradigm and sought to determine the market concentration, provide a behavioral explanation of how firms acquire and sustain market power and establish how the concentration affects conduct and performance of the annuity providers in Kenya. A mixed design is applied where secondary data is collected from the 8 firms offering annuity products in Kenya between 2009 and 2011. Focus group discussions are then conducted with key industry informants to explain the results. Market concentration is measured using the concentration ratio (C4) and the Herfindahl-Hirschman Index (HHI). An SCP model for the annuity market segment is then conceptualized. The findings point to a highly concentrated industry with HHI indices averaging 98% in the three years to 2011. Evidence generated shows that market power in the market is enabled by regulation, irreversible long term nature of the products, collusion between pension administrators and the players, lack of close substitutes to annuities and absence of differentiation – factors which have led to tendency for mergers and strategic partnerships, low returns for the annuitants, information asymmetry, low bargaining power of the consumers, diseconomies of scale and lack of innovation. The study recommends some policy implications to minimize the abuse of dominant positions by firms.


Annuities, concentration, structure-conduct-performance.

Full Text:



Aghion, P., Bloom, N., Blundell, R., Griffith, R. & Howitt, P. (2005). Competition and innovation: an inverted U relationship”. Quarterly Journal of Economics, 120, 701-28.

Allen, A.J., &Shaik, S. (2005). Performance of the Agricultural Commodity Trucking Sector in the United States. Paper presented at the South-western Economics Association Annual meeting. March 23-26, New Orleans, Los Angeles.

Amir, R. (2002). Market Structure, Scale Economies and Industry Performance, Mimeo.

Amir, R. & Lambson, V. (2000). On the effects of Entry of Cournout Markets. Review of Economic Studies, 67 (2), 235-254.

Antolin, P. (2010). Private Pensions and the Financial Crisis: How to ensure Adequate Retirement Income from DC Pension Plans. Financial Market Trends, 2009/2.

Blake, D. (1999). Annuity Markets: Problems and Solutions. Geneva Papers on Risk and Insurance, 24 (3) 358 – 375.

Blake, D.,& Hudson, R. (2000). Improving Security and Flexibility in Retirement. [Online] Available: Accessed on 4 November 2013.

Boone, J. (2008). A New way To Measure Competition. The Economic Journal, 118 (August), 1245-1261.

Byeongyong, P., &Weiss, A. (2005). An Empirical Investigation of Market Structure, Efficiency and Performance in Property Liability Insurance. Journal of Risk and Insurance, 72, 635-39

Church J., & Ware, R. (2000):“Industrial Organization: A Strategic Approach”. McGrawHill.

Claessens, S. (2009). Competition in the Financial Sector: Overview of Competition Policies. Working paper WP/09/45, IMF.

Curry, B., & George, K. D. (1983). Industrial Concentration: A Survey. Journal of Industrial Economics, 31, 203-255.

Daykin, C. (2002). Reserving for annuities. Mimeo, UK Government Actuary’s Department.

Doyle, S. & Piggott, J. (2000). Mandatory Annuity Design in Developing Economies. Working Paper 2000/03, Centre for Applied Economic Research.

Fisher, F.M., &McGowan, J.J. (1983). On the misuse of accounting rates of return to infer monopoly profits”. American Economic Review, 73 (1) 82-97.

FSD (2011).Consumer Diagnostic Study Kenya. Nairobi: FSD Kenya

Garcia, A, L. (2013). Market Structure, Conduct and Performance of Cut-Flower Growers in selected Cities in Mindanao Philippines. Asian Journal of Business and Governance, 3, 83-103.

Hall, M., & Tideman, N. (1967). Measures of Concentration. Journal of Statistical Association, 62, 162-168.

Holloway, G. & Bayaner, A. (2013). Structure, Conduct and the Stochastic Volatility of Food Markets: Theory and Empirics. Environmental Economics: University of Reading.

Insurance Regulatory Authority website (2013). Accessed on 4 November 2013.

Jedlicka, L., &Jumah, A. (2006). The Australian Insurance Industry: A Structure Conduct and performance Analysis. Economic Series, 189-224.

Jerger, J. (2004). Industrieokonomik - skriptumZurVorlesung 2004/5. University of Regensburg, Regensburg.

Keizi, L. (2007). Annuities Markets in Kenya: Problems and Possible Solutions. Retirement Benefits Authority. Online: Available;

Lerner, A.P. (1934). The concept of monopoly and the measurement of monopoly. The Review of Economic Studies, 1, 157-175.

Mann, H.M. (1996). Seller concentration, barriers to entry and rates of return in thirty industries, 1950-1960. Review of Economics and Statistics, 70, 614-622.

Morales, M. & Rocha, T. (2006). The Chilean Annuities Market. Paper presented at Santiago, Chile. March 29 – 30.

Motta, M. (2004). Competition Policy: Theory and Practice. Cambridge University Press.

Nickell, S. (1996). Competition and Corporate Performance. Journal of Political Economy, 104, 724-46.

Nickell, S. (1999). Product Markets and Labour Markets. Labour Economics,6, 1-20.

Orszag, M. (2000). Annuities: The Problems. Paper presented at NAPF Annual Conference. May 11 – 12.

Perloff, Karp and Golan, (2007). Estimating Market Power and Strategies, Cambridge University Press.

Pepall, L. Richards, D., & Norman, G. (2005). Industrial Organization: Contemporary Theory and Practice. Thomson.

Retirement Benefits Authority website (2013). Accessed on 4 November 2013

Rusconi, R. (2008). National Annuity Markets: Features and Implications. Working papers on Insurance and Private Pensions, OECD.

Sahoo, D. & Mishra, P. (2012). Structure, Conduct and Performance of Indian Banking Sector. Review of Economic Perspectives, 12 (4) 235-264.

Scherer, F.M. & Ross, D. (1990). Industrial Market Structure and Economic Performance. Boston: Houghton Mifflin Company.

Schmalensee, R., &Willig, R.D. (1989). Handbook of Industrial Organization. North Holland: Amsterdam.

Shaik, S., Allen, A.J., Edwards, S. & Harris, J. (2009). Market Structure Conduct Performance Hypothesis Revisited using Stochastic Frontier Efficiency Analysis. Journal of Transportation Research Forum, 48 (3) 5-18.

Standard Investment Bank (2013). Kenya Insurance Sector Initiation Coverage (30 January 2013). Online available: Accessed on 4 November 2013

Tirole, J. (1998). The Theory of Industrial Organization. MIT Press

Troya-Martinez, M. (2006). Competition Policy in the Financial Sector in Latin America. Working Paper Series No. 2006-1E, OECD.

Waldman, D.E., & Jensen, E. J. (1998). Industrial Organization Theory and Practice. Addison Wesley.

Weiss, L. (1974). Concentration Profit Relationship and Anti-trust. In Audretsch D., Yamawaki, H., (eds), Industrial Concentration: The New Learning. Boston: Little Brown and Company.



  • There are currently no refbacks.

Copyright (c)


Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.


If you find difficulties in submitting manuscript please forward your doc file to Our support team will assist you in submission process and other technical matters.

In order to get notifications on inbox please add  this domain in your email safe list.

International journal of business and social research (Print)
ISSN 2164-2540

International journal of business and social research (Online)
ISSN 2164-2559

[International Journal of Business and Social Research (IJBSR) previously published by MIR Center for Socio-Economic Research, MD, USA. From February 2018 this journal is published by the LAR Center Press, OR, USA]