Abstract

Insurance is a “risk transfer mechanism that makes it possible to transfer the financial consequences of potential accidental losses from the insured firm, family or individual to an insurer” (Coker, 2006).

Claims settlement, which dates as far back as the history of insurance, is the only reason the customer (insured) buys an insurance product. The main objective of this research was to investigate the reasons why insurance companies are reluctant to settle claims in Buea municipality in particular and also the specific objectives are;- To establish how insurance companies carry out claims settlement?

-Examined the customer’s perception of the existing trend of the claims settlement system in the company through questionnaires and interviews with both the company’s staff and their clients.

-To give a blueprint of the principles of insurance and the various types of insurance policies involved.

-To increase the awareness of the public about insurance claims settlement since it is one of the reasons why people do not want to take insurance because of the negative impressions they have about insurance companies and their reluctance in settling claims. The response to claims settlement has rather been slow in Cameroon and this is a call for concern since a thriving economy depends to a large extent on the guarantees and assurances received from insurance companies.

To achieve this objective, a field survey was used where the respondents responded to questions that were asked in the questionnaires which were designed for the purpose of the research.

The study was conducted by carrying out an in-depth survey with members of the public who owned insurance and also with insurance companies.

Data collection was collected by administering questionnaires to both customers (insureds) and staff of insurance companies and also, interviews were conducted which was the primary source of data.

The results obtained from the data collection were cross-tabulated and subjected to descriptive analysis which was the method used. Here, the respondents were: policyholders, insurance companies, and their staff.

By doing this, some of the challenges encountered in the field were; difficulties in getting some of the important information from some of the respondents, procrastination on filling the questionnaires, and also having a face-to-face chat with some of the policyholders and the staff in the insurance companies.

The results obtained established the fact that prompt and satisfactory claims settlement had positive effects and genuine reasons on the perception of the insureds rather than when claims take a longer duration to be settled.

CHAPTER ONE

INTRODUCTION

1.1 Background To The Study

Recent years have seen a significant increase in the awareness level of insurance in the economy of Cameroon and West Africa as a whole. Even though not encouraging, the latest observations indicate that insurance awareness is increasing but rather at a slow pace, (National Insurance Commission Annual Report, 2009).

Unlike in developed countries like; the United States of America (U.S.A), Switzerland, Germany, and the United Kingdom (U.K) where insurance awareness is deemed to have reached its peak and is now concerned with the awareness of insurance operations on the internet, Cameroon may be said to be at its very elementary stage.

A survey conducted and published in the 24th September 2000 edition of a leading U.K research Organization, Marketing and opinion Research International Financial services (MORPFS) concluded that even though the awareness of insurance is at its peak, 56% of people have no insurance cover at all that will cover their financial interest should the worst occur. The research also states that few people have adequate insurance cover due to misconceptions and reluctance of claim settlement processes of insurers.

The rising intricacy of the world economic system in today’s industrial age has increased the importance of insurance in the process of manufacturing and profit-making dealings.

The absence of insurance will constantly subject the individual/organization to the fear of a huge financial loss in the event of a tragedy and so will affect their decision-making course of action in diverse ways.

It is therefore apparent that a viable economy is dependent on compensating victims of an insurance claim.

It used to be said that insurers would do anything possible to squirm out of paying claims. Insurers have been criticized for their marketing methods based on cloudiness, twisting, and mis-spelling.

If a company does not effectively handle its claim service, it can tarnish its image hence affecting some aspects of insurance like marketing and sales of their products. Insurance company’s attitude to claim settlement has in the past provoked a lot of public criticism and even attracted the attention of the government.

In the past, the majority of insurers have persistently failed to claim specialists to enhance their claims service. The typical claims department always seemed to be an afterthought, the last to get new equipment or staff. The focus was on sales, winning new business, and retaining accounts.

As the years passed there have been very few changes in the perception of claims (Burley, 2008). It is in this light that most insurance regulatory bodies now seek to recognize the need for a thorough review of the role of the claims professionals in the insurance industry (Kelly, 2008).

Recently, however, in developed countries, the true value of the claims professional has come to the fore and now the claims operation is recognized as being the point where “Treating customers fairly” is tested and where the customer experience is molded.

This increased focus on claim operation has brought its own benefits to claims professionals. Not only has their individual value-enhanced but claim operations are now valued: it is the “shop window’’ of the insurance company and has never been more tested (Burley, 2008).                                                                                                                                                                                                                                                          In spite of these prevailing changes, the same cannot be said for the insurance companies in Cameroon. The insurance companies in Cameroon have been in a state of evolution for several years and are now in the process of reaching a new maturity.

In West Africa, especially Cameroon, the response to these changes has rather been slow and this should be a source of great concern since the world is fast becoming a global village and in order for the insurance business in Cameroon to thrive it needs to embrace these practices and philosophies.

Consequently, insurance companies in West Africa now wish to improve their public image and regain the trust of their brokers (middlemen) and clients in order to meet their objectives of a claims settlement.

More praise goes to the coming of the CIMA code known in French as “Code des Assurance des Etats members de la CIMA “ which governs all the laws and practices of insurance companies in the French-speaking countries of the CEMAC zone.

What is indemnity?

Indemnity is placing the insured in, if not exactly as close as possible, the position he was in immediately prior to the occurring of the loss (Graham, 2005).

The principle of indemnity is the backbone of insurance and claims settlement. The philosophy behind Indemnity is that nobody should be allowed to make a profit out of his misfortune (Lowe, 1999).

There must also be an insurable interest in what is insured in case a claim is made. There are two other principles, which are referred to as corollaries (as a result of) of indemnity. These are: subrogation and contribution.

Subrogation: This word comes from a Latin phrase “sub” “rogare” meaning “to ask under”. In the case of Burnard v. Radocanachi (1882), “it was held that an insurer, having indemnified a person, was entitled to receive back from the insured any payment they may receive from any other source” (Brear, et al, 2004)

Contribution is the right of an insurer to call upon others similarly, but not necessarily equally, liable to the same insured to share the cost of an indemnity payment (Brear, et al, 2004).

Proximate cause is defined in Pawsey v. Scottish Union and National (1908) as the active, efficient cause that sets in motion a train of events which brings about a result without the intervention of any force started and working actively from a new and independent source.” (Peter Wildman, et al, CII 2005).

1.2 Problem Statement

In Cameroon, the insurance companies, just like other insurance companies in other parts of the world, do pay claims yet, they have a dented image in the eyes of the insuring public (Lijadu, 2002) which is the problem of running an effective claims administration, that would satisfy the customers and earn their confidence.

Claims settlement is like a mirror through which the members of the public see an insurance company.

A company, which fails to settle claims to the satisfaction of customers, would definitely attract less business, as it is like to discourage such clients to continue to insure with the company.

Such clients might even advise their friends, colleagues and relations not to patronize such a company.

Prudent claims administration strategy promotes customer loyalty as it helps to develop a perception of membership, or belonging within a particular group of opportunities to retain existing customers while attracting new ones and profitable ones (Braer.S, 2004).

The consequent effect of the above problem could lead to downward trends in claims settlement, low premium income, low capital formation (savings and loans), and minimal contribution of an insurance company to the gross domestic product (GDP) country. This project is therefore to look at the reasons why insurance companies are reluctant to settle claims.

Despite the enormous efforts put in place by both the insurance companies and the government in regulating and supervising insurance contracts, the expectations of the insurers have still not been attained and this drawback must have been in the settlement of claims.

This has led to an urge to find out or research the reasons why insurance companies are reluctant to settle claims in the Buea municipality.

 1.2.1   Research Questions

1. Do prompt claims settlement have any effect on the insureds?
2. Does the settlement or non-settlement of the insured’s expected claim amount have any effect on the insureds?

1.3 Objectives Of The Study

Main Objective

The main aim of this study is to bring out the reasons why insurance companies are reluctant to settle claims in the Buea municipality. This gives insurance companies a broader range of their claims settlement techniques to which they are exposed to.

Specific Objectives

1. To establish how insurance companies carry out claims settlement?
2. Examined the customer’s perception of the existing trend of the claims settlement system in the company through questionnaires and interviews with both the company’s staff and their clients.
3. To give a blueprint of the principles of insurance and the various types of insurance policies involved.
4. To increase the awareness of the public about insurance claims settlement since it is one of the reasons why people do not want to take insurance because of the negative impressions they have about insurance companies and their reluctance in settling claims.