CHAPTER ONE

INTRODUCTION

1.1 Background of the study

  The insurance company is a risk mitigation tools that promote economic stability and development. In developing economies such as Cameroon, insurance plays a pivotal role in protecting individuals and businesses from unforeseen losses and liabilities. However, one of the major challenges facing the industry is the persistent issue of poor claim settlement practices, which significantly affects consumer confidence and the overall growth trajectory of insurance companies (Nkongho, 2020).

Claim settlement, The insurance industry is a cornerstone of modern financial systems, claim settlement is the primary function through which insurance companies fulfill their contractual obligations. Timely and fair claim settlement not only reinforces policyholder trust but also enhances the reputation and competitiveness of insurance firms (Ghimire & Koirala, 2018). Conversely, delays, denials, and underpayment of claims can lead to legal disputes, customer attrition, and reputational damage, all of which hinder business expansion and profitability (Tchamyou & Asongu, 2017).Historically, the claim settlement crisis in Cameroon has evolved alongside the regulatory environment. In the early 2000s, studies highlighted very low claim settlement ratios, resulting in widespread mistrust. Mid-2000s reforms attempted to address this with more stringent rules. However, by the 2010s, it was clear that operational inefficiencies and lack of digital infrastructure continued to hamper progress. Recent studies (2020–present) have shifted attention toward digitalization, customer satisfaction, and the use of data analytics to improve service delivery (African Insurance Organization, 2022).Some of the enduring causes of poor claim settlement in Cameroon include inadequate regulatory enforcement, limited financial and human resources, insufficient training of claims handlers, and lack of customer education. Moreover, the dominance of French as the official language of most insurance policy documents has created a language barrier for English-speaking Cameroonians, further complicating claims understanding and resolution. This disconnect has further alienated potential policyholders, reducing trust and uptake, particularly in Anglophone regions.

In Cameroon, the insurance penetration rate remains relatively low, estimated at less than 3% of the population, largely due to skepticism about insurers’ ability to honor claims (Association of Insurance Companies of Cameroon, 2022). Despite regulatory oversight by the Inter-African Conference on Insurance Markets (CIMA), complaints about poor claims handling persist, highlighting inefficiencies and gaps in service delivery. These challenges reduce consumer willingness to purchase or renew policies, limit market growth, and ultimately undermine the financial health of insurance providers. Also research findings have continually pointed to the adverse effects of inefficient claim settlement on industry growth. As noted by Oyetunji et al. (2021), poor claims handling is negatively correlated with demand for insurance policies, limiting the expansion potential of insurers. These outcomes manifest in various ways, including decreased customer loyalty, negative word-of-mouth, lower premium income, increased operational costs, and generally low insurance penetration. Ayuba et al. (2020) also established that effective claims management significantly enhances customer retention and contributes to better business performance in general insurance markets across Africa.

Nevertheless, recent trends offer glimmers of hope. The industry has shown growth, with gross written premiums rising from XAF167.6 billion in 2018 to XAF253.1 billion in 2022, and the number of licensed insurance companies increasing to 32. However, insurance penetration remains low at 1.4% of GDP, underscoring the need for deeper reforms (Cameroon Insurance Association, 2023). Government policies promoting compulsory insurance and the rise of microinsurance and digital platforms represent opportunities to regain public trust and stimulate growth—provided that claim settlement becomes more transparent, efficient, and customer-centric.

 Furthermore, in a competitive environment characterized by increasing customer awareness and digital transformation, insurers that fail to streamline their claims processes risk losing market share to more agile competitors. For the Cameroonian insurance industry to achieve sustainable growth and contribute meaningfully to national development, resolving issues related to poor claims management is imperative.

Despite these developments, one of the most persistent challenges facing the Cameroonian insurance sector is poor claim settlement practices. Delayed, denied, or unjust claim settlements have undermined public confidence in the insurance system, discouraging many from purchasing insurance policies unless compelled by law—such as with mandatory third-party motor insurance. Numerous studies have emphasized that claim settlement is a critical touchpoint in the customer journey and a key determinant of satisfaction and trust. According to Okparaka et al. (2022), poor claim settlement significantly predicts reduced demand for insurance, as policyholders perceive insurers as untrustworthy. Similarly, Agbo and Agbaji (2019) demonstrated that effective motor insurance claim settlement improves penetration levels and enhances public trust in insurance products.This study, therefore, seeks to explore the effects of poor claim settlement on the growth of insurance companies in Cameroon, with a view to identifying actionable strategies to enhance service delivery, customer satisfaction, and industry performance.

1.2 Statement of the Problem:

Despite its crucial role in promoting economic stability and providing financial protection, the insurance industry in Cameroon continues to face significant challenges, with poor claim settlement practices emerging as one of the most persistent and detrimental issues. Delayed, denied, or unjust claims have eroded consumer confidence, discouraged policy uptake, and limited the industry’s potential for growth. Many Cameroonians perceive insurance as a compulsory obligation rather than a valuable risk management tool, especially in the case of third-party motor insurance, which is legally mandated. This negative perception is largely driven by the frequent dissatisfaction experienced during the claims process.

Research has consistently shown that inefficient claim settlement is a major barrier to customer satisfaction, loyalty, and retention, all of which are critical to the sustainable growth of insurance companies. Studies such as those by Oyetunji et al. (2021) and Okparaka et al. (2022) have established a strong link between poor claims handling and reduced demand for insurance services. In Cameroon, this has translated into low insurance penetration rates, stagnating premium income, increased operational costs, and reputational damage to insurance providers. Although regulatory bodies like CIMA exist, persistent inefficiencies, weak enforcement, language barriers, and limited technological adoption continue to undermine effective claims management.

Given the increasing competition in the financial services sector and rising customer expectations in a digital era, failure to resolve these issues threatens the long-term viability of many insurance companies in Cameroon. Therefore, this study seeks to examine the effects of poor claim settlement on the growth of insurance companies in Cameroon and to propose strategic measures aimed at improving service delivery, strengthening consumer trust, and enhancing the overall performance of the industry.This study therefore seeks to attempt answers to the following research questions

1.3. Research Question

1.3.1. Main Research Question

      What is the effect of poor claim settlement have on the growth of insurance companies in Bamenda?

1.3.2. Specific Research Questions

• How poor claim settlement affect the subscription of insurance contract?
• To what extent do poor claim settlement affect the continuation of insurance contract?
• How poor claim settlement affect the turnover of insurance companies in Bamenda?
• What risk management strategies can insurance companies employ to mitigate poor claim settlement’s impact on growth?

1.4. Research Objectives

1.4.1. Main Research Objectives

       To investigate the impact of poor claim settlement on the growth of insurance companies in Bamenda.

1.4.2. Specific Research Objectives

   To examine the impact of poor claim settlement on the subscription of insurance contracts.

   To assess how poor claim settlement affects the continuation of insurance contracts.

   To evaluate how poor claim settlement affects Bamenda’s insurance turnover.

   To identify risk management strategies mitigating poor claim settlement’s impact on growth.