ABSTRACT

This paper examines the vulnerability of consumers in insurance contracts within the Cameroonian context, highlighting the challenges and systemic issues that contribute to consumer disadvantage. Despite regulatory frameworks aimed at protecting policyholders, many consumers remain at risk due to factors such as lack of awareness, complex contract terms, and limited access to information. The asymmetry of information between insurance providers and consumers exacerbates this vulnerability, often leading to misunderstandings and disputes over policy coverage and claims. Additionally, the enforcement of consumer protection laws is inconsistent, leaving many without effective recourse when conflicts arise. This study explores the socio-economic and legal dynamics that underpin consumer vulnerability, drawing on case studies and empirical data to illustrate the prevalent issues. It also discusses the role of regulatory bodies and consumer advocacy groups in mitigating these challenges and suggests policy recommendations to enhance consumer protection in the insurance sector. The findings underscore the need for more robust regulatory oversight, improved consumer education, and greater transparency in insurance practices to empower consumers and ensure fair treatment. By addressing these areas, the insurance industry in Cameroon can build trust and foster a more equitable relationship between insurers and policyholders.

Keywords: consumer vulnerability, insurance contracts, Cameroon, consumer protection, regulatory framework, information asymmetry, policy recommendations, insurance industry, transparency, consumer education.

CHAPTER ONE

INTRODUCTION

The earliest known instance of insurance dates back to the Babylonian period circa 2250 BC[1], when the Babylonians developed a type of loan insurance for maritime business[2]. Examples can be found in the Code of Hammurabi. Upon receipt of a loan to fund his shipment, a merchant would typically pay the lender an additional premium in exchange for the lender’s guarantee to cancel the loan should the shipment be stolen or lost at sea. In effect, the lender assumed the perils of the goods in transit at a premium rate of interest. The maritime loan therefore cannot be considered a stand-alone insurance contract, although the practice proved effective enough for it to later be adopted by the Greeks, Romans, and Italian city-states. Somewhat surprisingly, codified Roman law gave no recognition of insurance as separate from the maritime loan, but the precedent of life and health insurance could be recognized in the form of organized burial societies.[3]

Use of the maritime loan persisted until the thirteenth century in the Italian city-states of Genoa and Venice. Rigorous application of financial principles, as well as the city-states great fortune in escaping the stifling yoke of feudalism on commerce and trade and their convenient geographic location at the interstices of Eastern and Western culture, had given these merchants a commercial advantage, establishing a wealthy trading region. However, maritime commerce sustaining the economies of these city-states was conducted at the mercy of natural and human hazards. Shipwreck by storm or even poor navigation was common. Ships and their cargoes were constantly in danger of being seized by pirates or corrupt officials, or made to pay exorbitant tolls for safe passage.

Nonfinancial measures were the primary mitigants of these risks, including steering clear of passages known to be dangerous, requiring collaboration, record keeping, and exchange of information, arming ships as a deterrent to pirates, and diversifying risk by splitting up a cargo among several vessels. Financial risk diversification was already well established by this time in the form of joint stock ventures, pooling goods of a number of merchants to be sold jointly. Ventures pooling goods in joint stock allowed for risk diversification at the level of the individual investor. This provided merchants the opportunity to contribute a fraction of their wealth to the equity of a venture, thereby gaining a pro rata risk-return exposure to its success.  If the ship went down, the loss would be spread among a number of investors, diversifying risk at both investor and product level.

The risk diversification benefits of this arrangement were, however, limited, as the combination of market risk, peril risk (i.e., the complete loss of ship and cargo), and business risk demanded a greater than optimal degree of managerial attention from investors. Another limiting factor was that the risks were not individually hedged, but lumped together. Separating peril risk out of this risk mix lowered the cost of equity by transferring the peril risk to an external party able to bear it at a lower cost. Such specialists assumed the peril risk through the maritime loan, repayable upon the safe return of a vessel and its cargo but written off in the event of loss. The system was imperfect, however, as  the  debt  instrument  exposed  the  specialist  to  counterparty  risk  in addition to peril risk.[4]

The maritime loan was thus not entirely fit for its purpose. The lender had only downside risk; with a debt instrument, there is no upside reward for the counterparty risk incurred in addition to peril risk. Borrowers, however, could only insure their venture in combination with a relatively expensive source of finance. From about the late fourteenth century on, merchant bankers began to split the finance and insurance components by drawing up separate contracts for the debt and the marine insurance. The advent of marine insurance, the oldest of the modern lines of insurance business, thus separated credit risk from peril risk, reducing the cost of both.

This innovation spread through the Mediterranean, to the Adriatic, and the Low Countries, eventually being adopted in England some 300 years later. At the time there was growing demand to finance and insure voyages to the new colonies of the British Empire. Famously, merchants, ship owners, and underwriters would meet at Lloyd’s Coffee House[5] in London to finance these ventures. Lloyd’s developed into an association of underwriters, so called because insurance policies were backed by a number of individuals, each of whom would write his name and the amount of risk he was assuming underneath the insurance proposal. The term “underwriting” is today synonymous with Lloyd’s, but in fact originated in the Italian city – states.

The practice of marine insurance required Genoese and Venetian merchants[6] to evaluate structural and contingent risks involved in maritime trade, such as the type of vessel, reputation of the captain, destination, season, cargo, piracy, corruption, and war. Although these merchants did not formalize the concept of probability in the statistical sense, they nevertheless relied on intuition, subjective experience, and objective records to guide their estimation rather than on formal probabilistic reasoning based on actuarial evidence.

Despite the lack of objective mathematical foundation, wide-spread markets and instruments existed for risk mitigation and risk taking by the late fifteenth century. Not only were commercially driven hedging and speculation common practice, but institutionalized gambling in the form of lotteries even became popular. Principalities found that public works projects could be financed from the proceeds of lotteries rather than by recourse to public funds. The widespread popularity of gambling stimulated an interest in probability theory among Jacob Bernoulli, Abraham de Moivre, and others. Their scientific treatment of the subject laid the foundations for the establishment of statistics as a branch of mathematics in its own right. Bernoulli found estimates for binomial sums, which today are known as Bernoulli trials, while de Moivre was the first person to make the leap from the binomial to the normal distribution, typically known as the bell curve or Gaussian distribution, as a continuous exponential approximation of the binomial distribution.

More so even than fear of loss or compulsion to gamble, mortality is of course a common human preoccupation.  The first example of modern life insurance was issued in January 1536 to William Gybbons of London.[7] The policy was a one-year term policy, according to which Gybbons’s beneficiaries would receive £ 400 in the event of his death in exchange for a premium of £ 32. Interestingly, William Gybbons did die within the next 12 months, and his underwriters had to pay the death benefit.[8] Given that the first mortality table would be created more than 150 years later, the underwriting of this policy was certainly akin to gambling.[9]

Insurance  originally  evolved  as  a  commercial  instrument,  and it  was  not  until  after  1666,  as  a  result  of  the  Great  Fire  of  London, that insurance for households, aptly named  “ Fire Insurance,” emerged.  The  aftermath  of  the  Great  Fire  saw  the  creation  by  Dr. Nicholas Bardon of the first insurance company, The Insurance Office, in 1667. To protect the houses and other building it was insuring, The Insurance Office formed actual firefighting teams. It issued badges known  as  fire marks  for  its  insured  properties;  its  firefighting  teams extinguished  fires  exclusively  in  buildings  bearing  the  fire marks. Other insurance companies soon followed and employed their own fire departments.  Obviously this concept of each insurance  company  having  its  own  fire  department  proved  to  be  disastrous. Eventually  a  deal  was  worked  out,  and  all  the  insurance  companies agreed  to  donate  their  equipment  to  the  city  to  create  municipal fire  departments.

Although fire insurance was initially restricted to houses, it was soon expanded to include business premises. Underwriting the risk of business premises burning  down  initially  presented  insurers  with problems in assessing risk premiums, but by 1720, a group of London insurers had introduced risk classifications to make insurance available even to hazardous trades.

What happened to the Insurance Office is unknown.  However, the  oldest  documented  insurance  company  still  in  existence  today began  life  as  a  fire  office.  Originally known as the Sun Fire Office, after many mergers and acquisitions it is now recognized as RSA, one of the largest insurers in the United Kingdom.

The development of maritime trade insurance, and later of other types of commercial and personal insurance, stimulated the creation of what we today consider pseudo financial instruments and contracts in the diversification and mitigation of risk. Yet in the early days, the actual  mathematical  measurement  of  these  risks,  other  than  in  a purely  qualitative  sense,  was  not  widespread.  Fine  quantitative  distinctions  evidenced  in  actuarial  opinions  today,  based  on  rigorous scientific method and subject to statistical scrutiny, represent a quantum  leap  over  the  rough-and-ready  risk  assessment  techniques of yesteryear. Some of these actuaries assessed the risk and dealt with insurance vulnerable consumers at the time.[10]

The first legislation in Cameroon was Ordinance No. 62/36 of 31 March 1962 fixing the legislation applicable to the operation and organization of insurance and Decree No. 62/437 of 18 December 1962 stipulating regulations relating to investments of insurance organizations in the Federal Republic of Cameroon. Foreign insurance companies in Cameroon were merged to form domestic insurance concerns, but they maintained very close ties with the parent company in France and Britain. The first national insurance company was Assurances Mutuelles Agricoles du Cameroun (AMACAM) which was established in 1965. Originally, it took the form of a mutual (Mutuelle) or cooperative having been created by the Chamber of Agriculture, Forestry and Fishery, thus emphasizing the need for a security cover after reunification and the unitary state attention was directed towards the coordination and unification of insurance legislation in both English and French-speaking Cameroon. The motivation generally has been clearly towards harmonization, unification, and integration of laws.

1.1 Background to the study

Early research on consumer vulnerability emerged from two distinct streams: The first considered relative disadvantage among subpopulations, and the second concentrated on varied marketer manipulations that affected consumer decision-making processes. The former often examined the intersection of poverty and racial prejudice during the cultural revolution of the 1960s.[11] Although instances of consumer vulnerability surely existed well before this time, this research was some of the first (with other authors such as: Andreasen, 1975, 1978 and Sexton, 1971, 1972) to begin to document it. The second stream of research examined how particular groups in American society were subjected to manipulations by marketers.[12] For instance, Langenderfer and Shimp[13] described why and how gullibility and interpersonal influence make consumers vulnerable to marketing scams, especially with the rise of the Internet. A good number of researchers and scholars have also tried to understand how to mitigate the problem of marketer manipulation, improve consumer security, as well as how to support vulnerable consumers. Although both streams of research have advanced over the last decade,[14] postulated as well by Martin and Hill, in 2012; and Moore, Wilkie, and Desrochers, in 2017.

Consumer vulnerability is fluid and dynamic, and consumers can move in and out of periods of vulnerability.[15] A consumer’s circumstances for example, going through bereavement, desperation, illness, among many, can make them more vulnerable at a given time. As a result, they may be at a particularly high risk of not getting a fair deal or being exploited by criminals. The COVID-19 pandemic has as well made consumers potentially more vulnerable than before. Social isolation, increased anxiety and different ways of shopping all contribute to this. In addition to general consumer protection law, in certain regulated sectors – for example financial services, energy and telecoms there are specific rules and guidance on dealing with vulnerable consumers that businesses in those sectors need to be aware of and abide by.[16] Prior to this contemporary situation of consumer exploitation in the insurance market that we see now, things were quiet different and more protective of consumers.

In Cameroon, after being visited by the European explorers and merchants that started with the Germans in 1884, it began with a series of treaties signed by Gustav Nactigal, Bismarck’s envoy and the Cameroonian Kings and Chiefs in Douala which marked the introduction of the German culture in Cameroon of which insurance was not an exception, and by 1887, German sovereignty was already firmly established in Cameroon (they were subject to German Imperial Laws).[17]

Later on, the Germans were defeated in the First World War by the British and the French forces in Cameroon in 1916. On 4^th March 1916, the victorious powers divided Cameroon into two portions which were confirmed by the treaty of Versailles in 1919. Great Britain then administered the portion of the territory lying to the West and France that lying to the East of the frontier line fixed by a joint declaration signed in London on 10 July 1919[18]. The recommended mandates were confirmed by the League of Nations, Acts done at London on 20 July 1922 defined the terms. Its Article 9 provides the basis of their full administrative power and marks the beginning of the duality of western legal systems, which the people of Cameroon have since experienced and to which they remain subject to this day[19] of which insurance was not left out.

Insurance in its modern sense was not known in most of Black Africa until the early nineteenth century. The early European colonizers brought to their various territories the idea of modern insurance. In the English-speaking territories, the idea was introduced by the early British merchants and today, insurance law and practice in these areas are almost entirely patterned along British lines. Similarly, in the French-speaking territories, of Africa, insurance principles and practices adopted are that of Metropolitan France.[20]

Until the 1950^s, there were no indigenous insurance companies operating in Cameroon. Contracts of insurance were effected with established insurance companies in France and Britain. Later on, these insurers appointed local agents to represent them and maintain their headquarters in the mother country. These agents were principally expatriate banks and traders who were given powers of attorney to effect insurance business, issue cover notes and service claims. One of the first insurance companies to have a branch office in Nigeria in 1921[21] was the Royal Exchange Assurance. Later on, several foreign insurance companies operate through the medium of branch offices, agencies and delegations.[22]

Insurance is a vital tool for economic survival of any modern society, and a vehicle for the economic protection of the individual and State. Insurance Law in Cameroon is governed by the CIMA code known in French as “Code des Assurances des Etats membre de la CIMA”. CIMA is the Central insurance supervisory authority in Sub-Saharan French speaking African countries. Presently aside Cameroon, it groups: Benin, Burkina Faso, Central African Republic, Chad, Cote d’Ivoire, Gabon, Congo-Brazzaville, Mali, Niger, Senegal, Togo, Equatorial Guinea and the Comoros Islands.

The CIMA region is an integrated organization of the insurance industry in 14 Francophone African States herein outlined supra. It was created in 1992 as a way to ensure effective supervision of the insurance industry in order to develop and maintain fair, safe and stable insurance markets for the benefit and protection of policyholders in the region. In 2011, the CIMA General Secretary was mandated by the Council of Ministers to report on how insurance codes in member States could be amended to promote access to insurance by the poor. At the time, the regional insurance legislation or “CIMA code” contained six books regulating the insurance sector in Francophone Africa, but did not include micro insurance and index-insurance.

Before undertaking the desired reforms, CIMA requested some assistance to conduct a diagnostic study of the micro insurance sector in its member countries and examine best practices in countries with similar socio-economic parameters and with more effective micro insurance mechanisms. A GIIF (Global Index Insurance Fund) funded study identified key regulatory obstacles to the development of micro insurance and index-insurance and provided recommendations to CIMA. In April 2012, the CIMA Book VII was adopted by the CIMA Council of Ministers and the law entered into force in July 2012. This Book regulated micro insurance and allowed the development of index insurance[23].

With the coming into force of the CIMA Code, Cameroonian lawyers have equipped and acquainted themselves with the provisions, implications, application, and implementation of the CIMA Code[24]. According to Lukong Pius Nyuylime and the team[25], they have a proven track record and experience in obtaining insurance licenses, better compensation of victims (with the recent increase of the monthly guaranteed minimum wages), drafting of Re-insurance contracts, drafting of standard form insurance policies of various insurance companies.

The Cameroonian insurance market occupies second position in the CIMA after that of Côte d’Ivoire. It remains the most structured in the CEMAC sub-region. In spite of this, the insurance sector is characterized by a low adherence to the insurance principle. In other words, many Cameroonians do not yet have the culture of insurance, hence the improprieties recorded in the sector. The institution of the CIMA code was aimed at putting order in the sector[26]but then, how favorable is it to the insurance consumers.

With the rapid growth of these insurance companies in Cameroon and the world at large, the vulnerability of insurance consumers increased as well. Looking at the vulnerability of consumers in insurance contracts from a consumer protection perspective, we can notice that up till date, insureds are still suffering in the hands of the insurers from the contracting point right up to claim settlement.

• Statement of the Problem

In our contemporary society, insurance companies care less for their contractual partners. The vulnerability of consumers has become a big issue in the society; this is clearly visible when it comes to claim assessment and settlement coupled with the non-negotiability of insurance contracts. This happens mindful of the mechanisms in force for their protection. If care is not taken here, grievous repercussions will follow in the nearest future because of over exploitation and unjust treatment of consumers by the self-enriching insurance companies.

• Research Questions
  • General research question
• To what extent is insurance contracts and claims settlement favorable to consumers?
  • Specific research questions
• How is an insurance consumer vulnerable, and what are the factors responsible for the vulnerability of these consumers?
• In what ways does the law attempt to protect insurance consumers against such vulnerability?
• How effective are the consumer protection mechanism put in place to cater for the insurance consumers?
• What appropriate measures can be done to remedy the vulnerable condition of insurance consumers?
  • Research Objectives
    • General research Objective
  • To assess the degree of vulnerability of consumers in insurance contracts.
    • Specific Research objectives
  • To determine and investigate factors responsible for the vulnerability of consumers in insurance contracts.
  • It is aimed at studying how the law seeks to protect the vulnerable consumers.
  • To examine the effectiveness consumer protection mechanisms.
  • Seeks to identify what measures can be taken to mitigate the rate of insurance consumer exploitation in the society.
    • Research hypothesis
  • The insurance consumer being vulnerable and prone to exploitation by insurance firms.