ABSTRACT

 The settlement of motor vehicle insurance is one of the primary objectives of insurance regulation. In order to achieve this goal, the concerned insurance company must maintain an adequate margin of solvency and adhere to a range of regulatory and supervisory measures established by the legislator. This does not go without difficulties. However, some claims in third party motor vehicle insurance go uncompensated or unsettled, with its associating impacts on the third party beneficiary, insured and the economy at large. The increase in such uncompensated claims unavoidable threatens the insurance business and financial healthiness of the economy. More often than not, such uncompensated claims provide huge benefits to the insurer at the expense of the beneficiary down to a third party in motor vehicle insurance. However, the Cameroonian insurance legislator has been in quest for an effective legal instrument to ensure settlement of motor vehicle insurance claims. This saw the light with the enactment of the CIMA code. This study using the doctrinal legal research aimed at examining the effectiveness of the legal framework for settlement of motor vehicle insurance claims. The question there posed is; how effective is the legal framework for settlement of motor vehicle insurance claims? Even though the CIMA code and cognate instruments regulate settlement of motor vehicle insurance claims, however, control remains a perpetual concern to authorities in charge of this sector and to other stakeholders within the insurance sector to ensure motor vehicle claims are effectively settled. We recommend inter alia that, the CIMA Code should specify the time limit or deadline for the writing of police reports and reports of medical experts in the event of accident in case of motor accident insurance, in other to fasten the process of settlement of motor vehicle insurance claims. This will avoid delay and fraud in issuance of reports following the occurrence of an accident.

CHAPTER ONE

GENERAL INTRODUCTION

1.1 Background to the study

This chapter traces the background to the study, the research questions that necessitated the research, the objectives to be achieved and the methodology employed in realizing the thesis. It also discusses the significance and justification of the study and the literature that underlie it, among others.

Generally, the end product of insurance is claim settlement. A third party involved in a motor vehicle accident or a purchaser of insurance services whose claim is not paid by the insurer has certainly lost the protection insurance is supposed to provide him/her. As a result, it is important that consumers be properly educated on claims procedure in the insurance world. The high level of illiteracy coupled with consumer apathy make it very difficult for the average Cameroonian to be interested in protecting his rights^[1].

Nonetheless, the CIMA Code has made certain classes of insurance compulsory,^[2] and the need for proper information is increasingly felt. The very first thing a proposer needs to do is to make sure that the insurer with whom he intends to do business with is legitimate. The CIMA Code holds: any insurance company of a member state must be incorporated in the form of a Public Limited Company (PLC) or Mutual Insurance Company (MIC).^[3] Subject to the provisions of this code, no insurer shall commence insurance business in the Central African region unless the insurer has obtained a business license by registering in the Commerce Register of his or country^[4].

In spite of the above provisions, there are unregistered or unlicensed insurance companies, who go about collecting money from the unsuspecting public. They usually have their agents who go around in motor parks and at the port of entry where cars are cleared^[5]. They indulge in rate undercutting by charging below the approved tariffs because they know they have no intention of ever to settle claims of beneficiaries resulting from motor vehicle insurance. The settlement of insurance claims, particularly from the point of view of any policyholder, is the ultimate fulfilment of the insurance contract. It is clear that claimants scarcely resort to civil litigation and would prefer to settle by machinery out of court. This has often been pointed out in relation to tort claims following accidents on the road involving a third party or at work which in practice will involve negotiation between an injured plaintiff and the defendant’s insurers^[6].

Over the years, the life of human has been faced with a lot of risk bearing; this is from their day to day activities they undertake,^[7] including the use motor vehicle. Risk is intimately linked to such activities just as death is linked to life. Both individually and collectively, man’s life is threatened by this enemy of risk whose constant presence in the mind has aroused the need of security against accident resulting from motor vehicles and conservation which naturally gave light to another notion that of insurance.^[8]

The prime purpose of motor vehicle insurance is to compensate or indemnify the victim which may be a third party, of his or her financial losses.^[9] 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 an economic viewpoint when the accident occurs. This is usually through the settlement of claims of the insured as well as third parties to accident caused by motor vehicles.

In order to effectively settle the claims of third parties, the concerned insurance company must maintain an adequate margin of solvency. It is worthy to note that solvency stands as the yard stick for a healthy insurance operation. Thus one of the fundamental reasons for the protection of motor vehicle policy holders and third parties beneficiaries is to guard against the insolvency^[10] of insurers. This overriding need is recognised in Cameroon^[11]. In this light, one can save energy and indulge in other lucrative activities only when he is confident that the finances of the insurance company are sound. In the same vein, Spence L. Kimball said^[12], “The importance of insurance (especially motor vehicle insurance) in meeting some of the most basic needs of the human being leads inevitably to the central goal of insurance regulation. If insurance is to do its job, that is, if it is to ensure, then the insurance enterprise must be solvent. Solvency is the most important goal of all insurance law and regulation”.

 But the problem arises as to what are the causes of insurance insolvency in motor vehicle insurance, especially financial failures?^[13] A major reason for insurance companies finding itself in financial difficulties or experiencing insolvency is through the transaction of more than two categories of insurance business. In this situation, one of the companies may be unproductive or unprofitable. It is forbidden for an insurance company to operate in all the two branches of insurance,^[14] thus, where an insurance company engages in two different types of policies, a licence will not be granted.^[15] It can be drawn from the past that, most insurance companies that wound up was as a result of them being engaged in much motor insurance (especially third party liability insurance cover) which resulted in collapse .In liability insurance, a catastrophic risk is attached to individual policies. A motor third party liability policy has no limit of indemnity for personal injuries.^[16] Catastrophes can bring about sudden financial ruin for an insurance company.

Moreover, an insurance company, which continues to under estimate the amount of its unexpired risk, is obviously incurring financial liabilities without putting aside sufficient assets to recover it. Such an insurer must run the risk of encountering serious financial problems in the future. Finally, another aspect of financial failure for an insurance company is the tendency to underestimate the amount of its outstanding claims. That is the insurer may produce a fictitious underwriting profit. This is most common with liability insurance as the total amount of outstanding liability claims is notoriously difficult to estimate.^[17]

The protection of motor vehicle insurance policyholders against non-settlement of claims by insurance companies when the company is a going concern and with it is facing financial difficulties is one of the primary objectives of insurance regulation.  In order to achieve this goal, a range of regulatory and supervisory measures are normally established to ensure financial and managerial soundness of insurance companies, and supervisory authorities are expected to do their best to avoid the failure of supervised companies. It is sometimes inevitable, however, that some insurance companies will encounter serious difficulties in settling the claims of policyholders.  In order to protect the interests of policyholders be it when the insurance company concerned is sound and when it is in difficulty, certain special regulatory arrangements are normally established.^[18] However, we are focused on the mechanisms of claim settlement under the CIMA^[19] code.

Before the coming into force of the CIMA code, the insurance industry in the sub-region in general and Cameroon in particular was sick and needed close legal attention.  In the search for solutions to the sickness a drug known as the CIMA code was manufactured which has been in use today for over decades.^[20] The CIMA code was adopted in 1993, with the objective of harmonising aspects of insurance in some French speaking countries of west and central Africa. These countries have signed and ratified the CIMA treaty and have agreed to be bound by the insurance legislation that forms an annex to the treaty. The federal Islamic Republic of Comoros has also signed the agreements but has not yet ratified it. The code itself came into existence in February 1995 and consists of six books covering life and non-life insurance business. The treaty and the code grew out of desire to rationalise and develop local insurance markets as well as to protect insurance policyholders and victims of accidents. The CIMA organisation which replaces CICA collaborates closely with insurance authorities in individual member countries. Its main objectives are to build up the insurance industries safe guarding the interest of policyholders, protecting technical reserve of insurer, advising national governments on insurance matters and supervising the insurance markets. The treaty also created a supranational supervisory body known as Commission Regional de Controle des Assurance which is widely credited for bringing discipline to insurance markets that it supervises.

             The question that comes to mind is whether the code is sufficiently armed to be able to fight the ills inherent in motor vehicle insurance industry as far as settlement of claims of third parties are concerned? What does the code have to offer, what does the code promises to the claim settlement of third parties and maintenance of confidence, in brief what future does the code hold for the insurance industry concerning the security and maintaining of confidence by ensuring effective settlement of third parties to a motor vehicle insurance? In this connection, an examination of some of the code provision which show that the insurance industry in Cameroon will have a lot to benefit from the code though some loopholes still exists.^[21] However, since enactment of the CIMA code, there has been a significant increase as to settlement of claims of third parties to motor vehicle insurance though much is still to be done.

1.3 Research questions

This work seeks to answer a series of research questions which are divided into main and specific research question.

1.3.1 Main research question

• How effective is the legal framework for settlement of motor vehicle insurance claims?

1.3.2 Specific research questions

• Which organs are in charge of ensuring effective settlement of claims of policyholders in motor vehicle insurance in Cameroon?
• What are the procedures for the settlement of motor vehicle insurance claims in Cameroon?
• What are the possible remedies for violation of rules of claim settlement in motor vehicle insurance?
• What policy recommendations can be made to solve the issues raised?

1.4 Research objectives

The work is based on the following research objectives

1.4.1 Main research objective

• To examine the effectiveness of the legal framework for settlement of motor vehicle insurance claims.

1.4.2 Specific objectives

• To determine the organs in charge of ensuring settlement of claims of policyholders in motor vehicle insurance in Cameroon.
• To examine the procedures for the settlement of motor vehicle insurance claims in Cameroon.
• To evaluate the sanctions that is imposed for violation of rules of claim settlement in motor vehicle insurance.
• To make policy recommendations that can be employ to ameliorate the situation.

1.5 Hypothesis

This research is based on the assumption that, the mechanisms put in place by the Cameroonian legislator do not adequately guarantee settlement of claims of policyholders in motor vehicle insurance in Cameroon.