Abstract

Would Cameroon experience growth economically without the partial help of the insurance sector? This project has main objective to investigate the role played by insurance companies in economic growth in Cameroon” the case of insurance companies in Fako.

Descriptive survey research design was implemented and Data was collected from 20 respondents (employees) from insurance company in Fako Division through self-administered questionnaire which were established using likert scale of five points. Data was analysed using Statistical Package for Social Sciences 21 Version for descriptive statistics regression and Pearson correlation analysis was further used to estimate the parameters of reliability and validity of the relationship between insurance company and the economic growth. Furthermore, this analysis was adopted to test the hypothesis using 5% level of significant.

Our finding shows that life and non-life insurance were significant at 5% level of significance. In addition to that, 5% increase in the independent variables will lead to a positive increase in the same amount of economic growth. It was therefore recommended that life and non-life insurance policy should be educated through seminars for the organisation to know and also engage in it. Policy on life and non-life insurance should be drawn so that individual should know on how to engage in such policy and how does it improve the growth in economics.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

A lot of debate can be emphasized on the role played by insurance companies in the world but simplicity entitles us to concentrate on the economy of Cameroon. Whether insurance or assurance throughout the ages, there has always been a need for insurance. The need for insurance arises from fear of the unknown, fear of risk and fear of loss (Webster dictionary, 1997). People want to be insured against the unknown and factors for which they have little control. However, insurance as we know it did not spring up but has evolved over centuries based on changes in need, regulation, and technology (Buckham, 2010).

The earliest known insurance instrument dates back to the Babylonian period of Circa 2250 BC (Buckham, 2010). When the Babylonians developed a type of loan insurance for marine business. Upon receipt of loan to fund a shipment, a merchant would typically pay the lender an additional premium in exchange for the lenders guarantee to conceal the loan should the shipment be stolen or lost at sea. Here, the lender assumed the peril of the good in transit at a premium rate of interest. These marine loans persisted until the thirteenth century in the Italian city states of Genoa and Venice. (Buckham, 2010).

Ships and cargo were constantly in danger of being seized by pirates while both financial and non-financial risk diversification where developed in the form of joint stock ventures, pooling of goods of a number of merchant to be sold jointly. (Buckham, 2010). The merchant did not formalize the concept of probabilities in the statistical sense; they relied on intuition, subjective experience and objective record to guide the estimation rather than on the former probabilistic reasoning based on actuarial evidence. Pascal triangle led to the first actuary tables that are still used in calculating insurance rates (Beattie, 2016).

Life and health insurance had it importance in 1840 when the industrial revolution created need for security that had traditionally given to a nation of farmers. Health insurance started as accident insurance in 1950 with the first auto insurance in 1898(Dictionary of America, 2003) .In terms of practice, insurance companies are divided into two namely life and non-life insurance companies. Life insurance include whole life (death), term and endowment, health while non-life insurance include liability loss, worker’s compensation and property loss (Messomo, 2015). Today, Cameroon counts about 25 insurance companies (Minepat,2012). Insurance companies have been described as the business that exists in order to ensure the survival of other business (Muhammed, 1998). Insurance companies are of vital importance in an economy.

An economy is what people produce and the relationship that make that production possible (Ian, 2013). Others define an economy as the process or system by which goods and service are produced, sold and bought in a country or region(Merriam,1828). The economy of Cameroon like any other economy in the world suffered some economic crisis in 1986 as a result of changing international economic and domestic policy environment (Derrick, 1992) which once boomed in the mid-1970 with a 7% growth rate and a per capita income of $800(Wilfred &Mufor, 2011). Which saw the collapse of some banks in Cameroon such as the Cameroon bank, Meridian BIAO and BICIC.

(Molua, 2010) noted that Cameroon experienced a boom in its renewable and exhaustive natural resources exploitation from the mid-1970 to the end of 1980. The economy of Cameroon has gone through three decades.

This comprises the period of real economic growth particularly in the year 1960 to 1986.The period of the economic crisis that stems up in the period of 1986 to 1994 and the period of economic recovery that started from 1995 to date which is a period referred to as globalization. Cameroon responded to this crisis by reducing public expenditure (Baye, 2002).

1.2 Statement of the Problem

Major non-life insurance products include auto insurance, fire insurance, and marine insurance among other types. Trends in the non-life insurance market may be affected significantly by the state of economic activities, growth of the domestic economy, and the level of insurance payments resulting from, in particular, natural disasters, such as typhoons and earthquakes (McGrath, 1990).

The limited scale of the Japanese economy and restrictions on economic activities constrain growth in demand for traditional non-life insurance and intensify price competition, requiring companies to adjust their prices and improve business efficiency to increase profitability. In the retail segment, the profitability of core products, such as auto insurance, is squeezed without flexible rate price adjustments in reference to the reference loss cost rates by General Insurance Rating Organisation of Japan.

As for non-life insurance in the corporate segment which is more customized than the one in the retail segment, profitability suffers without competition based on appropriate pricing through the establishment of risk-based management (McGrath, 1990).

Insurance companies in an economy serve as financial intermediaries. By their nature, they bear risk and these risks partly depend on the insurer’s ability to anticipate the frequency magnitude of the risk they promise to cover.

They transfer resources from those who would save to those who will invest (Richard et al, 1990). In fact, without an insurance industry, the economy would practically come to a standstill (McGrath, 1990). From this assertion of (McGrath, 1990), the following research questions were stipulated as seen below:

1.3 Research Questions

The discussed background and problem formulation lead us to the following research questions. The main research question is thus, “what is the role played by insurance companies in the growth of Cameroon’s economy? Other specific research questions are:

1. What is the role of life insurance companies in an economy?
2. What is the role of non-life insurance companies in an economy?

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