International Journal in Management and Social Science Volume 09 Issue 2, February 2021 ISSN: 2321-1784 Impact Factor: 6.319 Journal Homepage: http://ijmr.net.in, Email: irjmss@gmail.com Double-Blind Peer Reviewed Refereed Open Access International Journal 60 International Journal in Management and Social Science http://ijmr.net.in, Email: irjmss@gmail.com THE EFFECTS OF FRAUD ON PERFORMANCE OF INSURANCE INDUSTRY: A CRITICAL REVIEW OF LITERATURE Henry Nyabuto Otiso Department of Business Administration, Chuka University P.O Box ABSTRACT Insurance fraud is a challenge confronting the insurance industry in the recent decades. The vice is as old as insurance and is on the increase because of reluctance of the stakeholders like; the regulators and insurers, including the police, to adequately address it. The aim of this literature review was to investigate the effects of fraud on the performance of the insurance industry. This paper adopted a critical review of various related literature. The literature has been arranged in a logical sequence; qualitative and quantitative. A funnel approach was used in reviewing the literature, starting with global, followed by regional and finally local. Some findings of the review gave conflicting findings; while other results show that insurance fraud adversely affects the insurance industry that is; as fraud increases, performance decreases and vice versa, others showed a positive significant relationship. The review revealed conceptual, as well as contextual research gaps for future studies in the area of insurance fraud. From the reviewed literature only one of the studies used three types of fraud (customer, intermediary and internal) as independent variables to establish how they affect financial performance of the insurance industry. Likewise reviewed literatures have not used other measures of performance besides financial measures. Hardly has any research addressed the effects of insurance fraud on financial and non-financial performance of the insurance industry in Kenya. Therefore, this paper recommends future study on the effects of four specific insurance fraud components (Customer, intermediary, employee and third party) on financial and non-financial performance of the insurance industry in Kenya. KEY WORDS: Fraud, Insurance Industry, Performance, Customer, employee, Intermediary, Third Party INTRODUCTION Fraud can be generally described as a crime for illegitimate financial gain that uses deception as its principal modus operandi. Utah Insurance Department (2015) and the Center for Insurance Policy and Research (2014) expound that insurance fraud in particular happens when a person lies to an insurer, intermediary or any other party involved in the insurance contract in order to make financial gain which they don‟t deserve, or if an insurer, intermediary, insured, a person outside the insurance contract or service provider makes a willful lie to gain financially. This deception can take place in the form of misrepresentation when individuals are proposing for