Under Cover Business


As the population adapts to savings culture beyond the traditional duo of property and gold, insurance is coming to mean security for property, body, and retirement.

The capital markets, not least the insurance sector, provide a telltale fingerprint of the socioeconomic state of a nation. In Turkey, insurance penetration of around 1.5% reflects familiar emerging market traits, for one, a rising, but as yet largely untapped middle class. And meanwhile, the industry has adopted lateral approaches to raising public interest, while legislative moves continue to champion institutionalization, transparency, and consumer confidence. Turkey, prone to earthquakes, also has its own specific insurance dynamics. The devastating 1999 earthquake led to the establishment of the mandatory Turkish Catastrophic Insurance Pool (TCIP/DASK); to date according to official data earthquake insurance coverage today has exceeded 6 million homes, up steeply from 500,000 homes in 1999, with a penetration rate of around 35%. The TCIP targets of 10 million homes and 60% penetration by 2017.

Turkey’s young demographic also speaks of future growth in premium generation, as around 85% of the population comprise generations X, Y, and Z; the 18-34 age group alone accounts for 42% of total participants. Meanwhile, life expectancy has risen, fueling the pension segment in what remains an unsaturated sector. The young population, familiar with technology, is also accessible to insurers through multiple channels, such as smartphones and social networking, as opposed to the more traditional broker and bancassurance routes.
Insurance has become a $20 billion market, although Turkey’s average insurance premium per capita tops off at $146, markedly south of the $646 recorded in the US. History shows that insurance premium growth supersedes that of GDP, and also that declining GDP triggers a proportionally greater shrinkage in the insurance sector. The Turkish pattern is for non-life insurance premiums written to exceed total life insurance premiums, comprising roughly 85% of total business generated. Official data points to private insurance agencies generating roughly 70% of total premium in non-life branches, followed by banking agencies and brokers respectively on prints of 14% and 10%. Premium generated directly by insurance companies themselves accounts for roughly 6%.


In 1H2014 the new Insurance Agencies Regulation replaced the former Insurance Law in effect since 2007, importantly featuring protective provisions for both insurer and insured. Moreover, factoring and financing companies once free to operate as insurance agencies, today need to incorporate separate companies to provide insurance services. Complementary Health Insurance also manifested itself, and while not yet implemented, this will add momentum by providing coverage of treatment fees at private hospitals excluded by the Social Welfare Foundation (SGK). Also in 2014, foreign nationals became obliged to carry individual health insurance, provided from an insurer registered in Turkey, in order to apply for residency.


As of end-2013, Turkey hosted 61 active insurance, pension and reinsurance companies supervised and regulated by the Treasury. Insurance companies may opt to work either in life insurance and pensions, or else non-life insurance branches, although this restriction does not apply to reinsurance companies. All local and foreign insurance, reinsurance and pension enterprises in Turkey are obligatory members of The Insurance Association of Turkey, which also provides training and research facilities, fostering sector professionalism. Therefore, the growing Turkish insurance, pension and reinsurance market—employing approximately 20 thousand people—is comprised of progressively more qualified staff. The Insurance Association of Turkey calculates that as of YE2014 the 70-player sector comprises 19 pension, two reinsurance and 49 life and non-life insurance. Today three-quarters of Turkish insurance firms are foreign-owned or partnered, confirming the investment appeal of the market. Notable names providing coverage are Axa, Allianz, Groupama, and Mapfre.


By year-end 2014 the Turkish insurance industry had risen 7% with total market premiums of TRY26 billion. The telling decline on the previous year’s 22% appreciation can be attributed to insufficient premium production in Land Vehicles Motor Own Damage and Motor Vehicles Compulsory Third Party Liability, due to a weaker automotive sector. Both fiercely competitive lines, the two generate the bulk of premium volume, however, roughly with a share of 47% of total non-life premiums for 2014. Yet they grew just 2% YoY for the year. Total premium production as at end-2014 had reached TRY25.98 billion up 7% YoY. This broke down into TRY22.7 billion in non-life, and TRY3.3 billion in life branches, the latter down 3.4% YoY. Non-life insurance gross written premiums (GWP) make up just 1.3% of GDP, less than half of the EU average of 3.1%.


The private pension (BES) segment, launched in October of 2003—and incentivized by a 25% government contribution—is catered to by 17 pension firms. By 2013, participants had climbed 33% to roughly 4.2 million. Once exclusively the preserve of the employed, as of January 1, 2014 all adults became eligible participants. According to Turkinsurance premium generation for the non-life segment is forecast at TRY63 billion by 2023, coinciding with the 100th anniversary of the Turkish Republic, with life insurance foreseen at TRY16 billion. The bancassurance channel has gained greater importance since the advent of the BES segment. Official data indicates that at the end of 1Q2015, Individual Pension System participants exceeded 5.3 million people. Year over year the system’s total fund expanded 14.7% to $13.9 billion. Meanwhile, 17,799 people had retired by end-1Q2015. Pension Monitoring Center numbers, however, show that during 1Q2015 these Monday-blues free individuals has been more than replaced by over 228,000 new participants. According to official data during the first three months of 2015, 397 new participants entered the system, up 19.6% YoY. Total contributions climbed to $11.4 billion up 7.6% YoY amounting to more than 6 million contracts. The total amount invested was $11.2 billion. For 1Q2015, Garanti Emelilik led the field with 910 thousand 729 participants and a market share of 17.2%. Second was Anadolu Hayat ve Emeklilik with 892 thousand participants and a 16.9% share; while in third was AvivaSA Emeklilik ve Hayat with 758,000 participants and a 14.3% share. These three firms held 48.4% of the overall participant number in the Individual Pension System. The top five accounted for 66%. Meanwhile, the top three companies in terms of fund size stumped up 54.4% of total funds, and the top five firms 76.3%.


The Avivasa joint venture was established in 2007 through the merger of AK Emeklilik, a subsidiary of Sabancı Holding, and Aviva Hayat ve Emeklilik, a subsidiary of UK insurance giant Aviva operating in Turkey. Serving over 2 million customers in the private pension and life insurance segments, Avivasa Pension and Life Insurance shares were listed on Borsa Istanbul on November 13th, 2014, whereby it became the first pension and life insurance company to go public. Moreover, its TRY1.7 billion MCap ranked its IPO as the largest in Turkey for the year.


Today the bulk of the Turkish insurance sector’s reinsurance need is met by the international market. Other prominent reinsurers are Munich Re, Swiss Re, and Lloyd’s. The reinsurance market has just one local reinsurer, Milli Re, with a 10% market share in Catastrophe Excess of Loss treaties. With no natural disasters, 2014 saw the weakest lowest catastrophe loss business of the past five years. Total capacity of this line rose fractionally from ‚¬4 billion in 2013 to ‚¬4.3 billion in 2014. Yet regardless of this, insurance the insurance premium volume paid by insurance companies was unchanged YoY at ‚¬91 million. Milli Re’s total premiums rose 3.5% YoY to TRY957.8 million, where 75% of its total premiums stemmed from local, and 25% from international business.
The right combination of rising incomes and greater awareness will determine the upward, if shallow, trajectory of the insurance business.

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