The Turkish economy has registered major improvements in terms of competitiveness in recent years and has proved its potential as a magnet for international investors. In its World Economic Outlook, the International Monetary Fund pointed out that the outlook for the Turkish economy is positive. Despite a 6% GDP contraction in 2009, it could grow by 3.7% in 2010, one of the highest rates among emerging European economies.
The Turkish economy’s competitive advantages include a vast labour force, a high level of entrepreneurship, a rich and dynamic internal market, vast land and a favourable geographic location. Easy access to a range of global markets and better established institutions compared to other emerging economies also give Turkey an edge.
Alongside general economic development, financial services are growing fast. While insurance has been in the shadow of banking, it is catching up fast, developing products and distribution lines suitable for a developing market.
Demographic statistics
Turkey’s population was estimated at 72,561.312 at end-2009, of which 50.3% are males and 49.7% females. The annual population growth rate in 2009 was 14,500.
Some 17.8% of the population lives in Istanbul and 6.4% lives in the capital, Ankara. Other important urban centers are Izmir with 5.3%, Bursa with 3.5% and Adana with 2.8%. The unemployment rate reached 13.2% at the end of 2008, according to the latest data from Turkish Institute for Statistics.
Insurance history
Turkey’s insurance industry dates back to the 1870s when insurance services were mainly provided by foreign insurance companies. In 1900 the insurance companies operating in Turkey decided to come together under the umbrella of a professional organization and established the Insurers Syndicate of Turkey which had 81 members, all of which were foreign companies.
Currently, there are 59 insurance companies (57 insurers and two reinsurers) and all are members of the Association of Insurance and Reinsurance Companies of Turkey (TSRSB), which is a specialised non-governmental institution established by law whose members are all foreign and local insurance and reinsurance companies. The insurance and private pension market is regulated by the General Directorate of Insurance and supervised by Insurance Supervisory Board of the Undersecretariat of the Treasury.
Distribution channels
The principal channel for generating premiums is through agency networks, which has been the most accesible underwriting method since the industry was created, and accounts for 70% of insurance sales compared to about a half in Western Europe. Lately, it seems that other distibution channels are growing in importance. The faster development of the banking sector established the opportunity for bancassurance, which is becoming more prevalent in Turkey, as are insurance brokers. Direct marketing, telemarketing and internet sales are also developing as communication networks develop.
The spread of these new distribution channels is likely to increase the opportunities offered by Eastern markets. This should make Turkey and other emerging markets with similar characteristics even more attractive for companies looking to expand their geographical reach and increase margins, according to a study by PricewaterhouseCoopers.
Compulsory insurance products, like those introduced in the Motor sector in the shape of third-party Motor liability insurance, are now being extended to other economic spheres and represent a future opportunity. Professional liability for doctors and lawyers has become compulsory, as well as for some companies that work with or produce dangerous materials.
Facts and figures
Foreign financial services firms have been particularly enthusiastic entrants into the market. In the banking sector, CITIGROUP, UNICREDIT, BNP Paribas and FORTIS have significant stakes in or control Turkish banks. Foreign insurers were late arrivals, but many have gained significant positions and there were six major purchases by foreign groups in 2008 alone. A further way to enhance market share is by increasing control of joint ventures. Both AXA and ALLIANZ, the market’s two most important players, have decided to follow this path in recent times.
Acording to TSRSB data, written premiums totalled EUR6.53bn at the end of the 2009. Of this, EUR6.22bn came from the Non-life sector, while the remaining EUR310m represented Life insurance premiums. The total number of insurance policies issued in Turkey in 2009 reached 31.75m.
An examination of the number of policies by the type of insurance shows that Land vehicles liability took the first place with 11.6m, of which 10.75m were MTPL policies, while 6.6m were Fire and Natural catastrophy insurance policies.
Motor insurance policies are the most popular insurance lines in Turkey. Acording to the Turkish Institute for Statistics, at end-December 2009, there were 14.31m vehicles in Turkey, and people spent EUR1.4bn on insuring their vehicles. The average policy cost EUR395. According to Turkinsurance Magazine, the most important factors that drive consumers to buy insurance are high risks in traffic, high vehicle costs and the low purchasing power of people compared to the prices of the cars.
Since Turkey is situated in an earthquake zone, earthquake protection has become compulsory for workplaces and households. The Turkish Catastrophic Insurance Pool was created in December 1999, in the wake of the previous July’s Marmara earthquake. Subequently, earthquake insurance became compulsory for homeowners wanting to rent or sell a property or for any kind of utility subscription. At the end of 2010 there were 3.5m active earthquake insurance policies, which is still a low level of penetration for a population of over 72m. Further, there were only 83,000 optional earthquake insurance contracts, which can be explained either by the reluctance of people to buy this kind of insurance or a lack of advertising. After compulsory earthquake insurance, fire insurance is ranked second in terms of the number of policies, with 2.8m contracts.
Personal accident products account for 97% of the accident insurance segment, with 5.1 million contracts. These types of products are in high demand since the premiums are low and they are attached to other insurance or banking products. According to the latest statistics, 9.6m people own an Accident insurance policy.
But only 1.8m have Health insurance, including Travel insurance. Total Health insurance premiums rose to EUR742m, which translates into an average premium cost of a little over EUR400. At the same time, the annual Life insurance premium per person was EUR56 in 2009 and 13.2m people had a Life insurance contract, producing EUR742m in premiums, according to Turkinsurance Magazine.
Conclusions
The present volume of written premiums, the number of policies and the size of the population make Turkey one of the most attractive markets in the South-East of Europe. At this time there is a collective effort by the companies to increase insurance awareness and to establish the foundation for a healthier development of aditional insurance segments.
Nevertheless, the Turkish insurance sector requires a substantial strategic effort on the part of companies wishing to tap its potential and a pretty stable source of capital if they want to succeed in building a reputation in the market. One thing to be noticed is that Turkey’s predominant premium income is generated by compulsory insurance such as MTPL and Earthquake insurance, so that leaves the other insurance classes with a high growth potential.
The slowdown in global markets has, of course, affected the Turkish economy and, consequently, the insurance market. For now it will keep its status as an emerging market and once the markets starts recovering it will provide various opportunities for domestic and foreign insurers alike.
