CHAPTER ONE

GENERAL INTRODUCTION

The general introduction comprises of the background to the study, statement of the problem, the research questions and research objectives, the research methodology, literature review, theoretical framework, justification for and significance of the study, the scope of the study, the definition of key terms as used in the study and the synopsis of the chapters.

1.1 BACKGROUND TO THE STUDY

Martha Simo Tumnde once observed that,[1]

Insurance is a social institution as well as an economic device for the handling of risks to life and property. The purpose of insurance is to compensate or indemnify the victim for his financial losses. Insurance neither eliminates the loss, nor does it undertake to stop the misfortune or disaster from happening, all it does is to help soften the blow from a purely economic viewpoint.

Martha’s observation provides a balanced view of insurance, taking note of it as both a social service and an economic mechanism. Insurance helps individuals and businesses recover financially, but cannot undo the negative events themselves. She provides valuable insights into the expectations and limitations of insurance, serving as a reminder of its primary function to manage financial risk rather than prevent or reverse loss. The insurance industry has been profitable for many years and has been an important aspect of private and public long-term finance. Insurance industries transfer risk to the economy, they serve as a savings mechanism and equally help in the promotion of investment activities. It is necessary that insurance companies operate with profitability so that the whole system can get the required development.[2] Insurance policies are beneficial to anyone looking to protect their family, assets/property and themselves from financial risk or losses. Purchasing an insurance policy will help pay for medical emergencies, hospitalization, any illness and treatment, as well as medical care required in the future.[3]

The business of insurance dates back to the early human society when the use of trade by barter with no centralized nor standardized set of financial instruments and currencies were in operation.[4] This means that, insurance operated by way of mutual aids.[5] The ancient period of insurance saw two types of economies namely, the monetary and the natural or non-monetary economy. The monetary economy on the one hand originated from the Chinese and the Babylonian traders in the 3^rd and 2^nd millennia BC, respectively.[6] The practice was for merchants from china to redistribute their articles across many vessels so as to limit losses. The Babylonian practice was similar to that of the Chinese merchants whose system became famous and was recorded in the famous Code of Hammurabi in C. 1750 BC.[7] Meanwhile in the non-monetary economy, what operated was the presentation of gifts annually from various ethnic groups to the Achaemenian Monarch in the ancient city of Persia. The gifts functioned as some form of insurance.[8]

History also points to various jurisdiction like the Athenians, who advanced maritime loans for voyages whose repayment being canceled if the ships were lost.[9] The Greeks and the Romans introduced health and life insurance in about the 600 Century BC when they created guilds called ‘benevolent societies’ which cared for families of deceased members, as well as paying funeral expenses of members.[10] Guilds in the middle ages served a similar purpose. In the same way, the Jewish Talmud dealt with several aspects of insuring goods. In England before the late 17^th Century, friendly societies were in existence where people donated money to a general fund that could be used for emergencies.[11] The medieval era saw the emergence of the first form of insurance-like practice in Genoa and into the 14^th Century, separate and new insurance contracts were invented and in the subsequent century, maritime insurance developed widely with varied risks and premiums chargeable.[12] These new insurance contracts allowed the practice of insurance to be separated from investment, a separation of roles that first proved useful in marine insurance. It was an era which equally witnessed the first publication written on insurance.[13] The modern era saw the development of more sophisticated and specialized types of insurance. Some of its form were believed to have developed in London as early as the 17^th Century.[14] Some writers traced the origin to Europe while others noted that it started in Italy. According to Irukwu, insurance had existed for a long time in Europe and was well established during the time of Shakespeare but not as we have today.[15]

The generality of opinion credits marine insurance as the very first form of insurance and the oldest followed by fire insurance which increased in popularity after the great fire of 1666 in London.[16] Later, life insurance emerged in 1750, which is believed to be the largest branch of insurance. Marine insurance from 1350 extended to all centres of trade in Southern Europe and the very first legislation on marine insurance is said to have been made in Genoa, in Northern Italy.[17] Subsequently, other statutes were codified in insurance law and this practice spread to other jurisdictions.[18] The need to fill the gap between insurers and policyholders by providing some specialized experts with easy access to insurance products facilitating the growth of the insurance industry led to the introduction of insurance intermediaries.[19]      

Historically, insurance middlemen and insurance companies share similar background and their roles overlap. An insurance mechanism was recorded more than 2700 years in ancient Babylon.[20] Their origin is traceable to the early medieval periods. Some early English writers traced agency to the English Doctrine of uses.[21] Insurance agents and brokers have been around for most of the modern insurance era. Initially, insurance underwriters[22] also sold their contacts to policyholders. However, as demand increased and the risks grew more sophisticated, this became impractical. Underwriters lacked the time to both properly analyze risk and effectively sell protection. Then, necessity became the mother of insurance distribution.[23]

A mutual property insurance company was found by Benjamin Franklin in 1752 which remains the oldest carrier in operation.[24] However, it is the creation of the first stock insurance company in Northern America in 1972 that launched an agency system. In 1795, an insurance agency opened in Charleston and this was the first US insurance agency known as Davis and Reid insurance agency.[25]

In 1835, a large fire destroyed New York City’s business district and drove 23 of 26 fire insurance companies out of business.[26] This instilled in the minds of insurers, the wisdom of geographic diversification. Large insurance companies then found that they could spread their risks by contracting with agents in other cities to produce business. For example, in 1834 Gurdon Hubbard became the first insurance agent in the city of Chicago, representing the Atena Insurance Company of Hartford, Connecticut.[27] It took some time, but in the decade before the Civil War, the agency system became widespread.

By 1871, the year of the Great Chicago fire, this city alone has 129 insurance companies, only 14 were local.[28] These insurers were represented by networks of agents, with each agent assigned to a specific geographic area. Branch offices run by general agents managed the agency forces. From the earliest days, a dual system of insurance distribution developed. Some insurers employed agents who sold only their own products also known as captive agents while others hired the services of agents who sold for multiple companies, also known as independent agents. In addition, brokers representing insurance buyers entered the business.[29] The first was Johnson and Higgins, founded in New York City in 1845.[30] The development of brokers was controversial as 26 carrier representatives signed a letter stating that, the insurance brokerage system is evil to both insurance companies and customers in 1868.[31] The insurance-buying public disagreed and by 1908, most of those who signed the letter were out of business and brokers were prospering.[32]

Both agents and broker grew in professionalism. Independent agents and brokers formed trade associations in the late 19^th Century to promote their interests.[33] Today, families needing home, auto and life insurance and businesses needing coverage to enable their growth look to the local agency. Insurance agents persevered despite constant predictions of their demise. As long as their services are pleasant to policyholders and insurers, they will remain an essential part of the insurance marketplace.[34]

Before the emergence of the licensed insurance brokers as middlemen for the insurers and consumers of insurance services in Cameroon, brokers existed in France and Britain from where Cameroon became colonized.[35] It was in France and Britain that Cameroon adopted most of her practices in Law. In England, there existed bogus and sharp insurance brokering practitioners which allowed individuals and firms to hold themselves out as brokers but who were acting as the representative of one or more favored insurance companies, came the insurance Brokers.[36] The International Conference of Insurance Controls (CICA) was born in 1962 and was concerned with preserving the proper functioning of insurance companies and agencies established in the former French Colonies of West, Central Africa and in Madagascar.[37]

Cameroon has two broad categories of insurance intermediaries, namely, agents equally known as agents generaux and brokers equally known as courtiers. Article 2 of 1973 Order enumerated persons who can act as insurance intermediaries. They include; Natural or legal persons who hold a license delivered by an insurance concern or any other body empowered to do so. That is, agents. Natural persons figuring on the Commercial register as brokers.

1.2 STATEMENT OF THE PROBLEM

Cameroon makes use of insurance intermediaries in the insurance industry who serve on the frontline, connecting policyholders and insurance companies to facilitate the purchase and placement of insurance products. There are disheartening situations where policyholders who should be guided by these intermediaries find themselves misled with incorrect information about the terms, coverage or benefits of the policy knowingly and sometimes unknowingly.[38] Despite the provisions of Articles 508,514 and 515 of the CIMA Code, which provide for the conditions and for the qualification and professional training course of insurance intermediaries, some intermediaries do not possess the necessary expertise or ethical standards required to serve clients effectively.[39] The unhealthy competition between intermediaries who engage in different sales tactics prioritizing commissions they get when having high number of sales is a problem in their activities as it affects the policyholders needs.[40]

1.3 RESEARCH QUESTIONS

1.3.1 General Research Question

To what extent are the legal mechanisms for the regulation of insurance intermediaries effective in Cameroon?

1.3.2 Specific Research Questions

• What is the concept and nature of insurance intermediaries in Cameroon?
• What legal, institutional and policy framework governs insurance intermediaries in Cameroon?
• How effective are the measures regulating the activities of insurance intermediaries in Cameroon?
• What policy recommendations can be made to address the problem?

1.4 RESEARCH OBJECTIVES

1.4.1 General Research Objectives

To investigate the extent to which the legal mechanisms for insurance intermediaries’ activities are effectively regulated in Cameroon.

1.4.2 Specific Research Objectives

• To discuss the concept and nature of insurance intermediaries in Cameroon.
• To examine the legal, institutional and policy framework for insurance intermediaries Cameroon.
• To assess the effectiveness of the measures regulating the activities of insurance intermediaries in Cameroon.
• To make policy recommendations to remedy the situation.

[1] Tumnde M. S., Insurance Law in Cameroon, 1^st ed. (Limbe Presses Universitaire d’Afrique) 2012 at p.21.

[2] Kripa D., “Factors Affecting the Profitability of Insurance Companies in Albania” (2016), European Journal of Multidisciplinary Studies Vol.1, No.1;2016, Pp. 352-360;352

[3] Amish Tripathi, Importance of insurance-Need for insurance, Available at https;//www.iciciprulife.com/amp/insurance/insurance-importance.html (Visited on the 19/12/2024)

[4] Ibid

[5] Vaughan E. J. (et al), T., Fundamentals of risks and Insurance, 9^th Ed. (Singapore, John Wiley and Sons Asia pte) 2003 P.33-34

[6] Ibid

[7] Ibid

[8] Nicholas Barbon., “Historical development of Insurance Britannica” (2024) Available at https;//www.Britannica.com (Visited on the 06/12/2024)

[9] Charles Farley Trenerry., “A History of Insurance” (2017) Available at https;//www.swissre.com (Visited on the 06/12/2024)

[10] Ibid

[11] J. Franklin. The Science of Conjecture, Evidence and Probability Before Bascal, Baltimore, Johns Hopkins, 1^st Ed. (University Press) 2001 P.259

[12] Ibid

[13] It was written by Pedro de Santarem in 1488 and published in 1552 titled “The legal Treaties on Insurance and merchants bets.”

[14] Andrew Beattie, The history of insurance, from- ancient Babylonia to the American Colonies. Available at https;//www.investopedia.com (Visited on 19/12/2024)

[15] Irukwu J. O., Insurance law and practice in Nigeria, 1^st Ed. (Ibadan) 1991 P.1

[16] Ibid

[17] Ibid

[18] Funmi A., Nigerian insurance law, 1^st Ed. Lagos (Daison Publications ltd) 1992 p.1

[19] William Russel, “The history of insurance; When Did Insurance Start,” Available at https;//www.william-russell.com (Accessed on the 14/01/2025)

[20] “A history of insurance agencies; how it all started” Available at https;//www.agencyequity.com (Visited on the 28/12/2024)

[21] As cited in I.I. Kingsley in, Nigerian Commercial Laws: Agency, (Jos, Fab Ameh Nigeria Ltd “1^st Ed”) 1993; p.20

[22] Insurance underwriters are professionals who evaluate and analyze the risks involved in insuring people and assets. Insurance underwriters establish pricing for accepted insurable risks. The term underwriting means receiving remuneration for the willingness to pay a potential risk.

[23] Catherine Oak and Bill Schoeffler. “The evolution of insurance agencies” Available at https;//www.insurancejournal.com (Visited on the 29/12/2024)

[24] Ibid

[25] A history of insurance agencies, 2022 Op Cit

[26] Background on Insurance Intermediaries Available at https;//www.iii.org (Visited on the 13/01/2025)

[27] Insurance broker Available at https;//en.wik.org (Visited on 29/12/2024)

[28] Ibid

[29] John Thomas, “Insurance brokers-their evolving role,” Journal of the British Insurance Law Association 2012 Vol.1, Issue 136, p.32-33

[30] Ibid

[31] Ibid

[32] “The Independent Insurance Agents and Brokers” Available at https;//www.wainsurance.org (Visited on the 28/12/2024)

[33] Ibid

[34] A history of agencies, 2022 Op Cit

[35] Ibid

[36] Insurance Broker, (Registration) Act in 1977 2^nd, January 2017 available at www.http://on.wikipedia.org/wiki/insurancebroker (Accessed on the 06/12/2024)

[37] The Council of Insurance Agents and Brokers Available at https;//www.ciab.com (Accessed on the 28/12/2024)

[38] Thou Article 18 of the CIMA Code provides for sanctions for fraudulent misrepresentation by insurers and insurance intermediaries as well because they work with insurance companies.

[39] During the researcher’s interview, 20 out of 26 persons interviewed were of the same opinion.

[40] These behaviors affect both the policyholders and the insurance companies. Policyholders may find themselves with policies that do not meet their needs, leaving them underinsured or without the appropriate coverage. Policyholders may equally lose trust in the particular insurance company. As regards to the insurance companies, their reputation may be tarnished due to their bad activities reducing the number of policyholders taking policies in the company. The company may also incur financial losses as a result of the numerous claims brought because of misrepresentation or other illegal activities.