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INSURANCE IN TURKEY - INTRODUCTION
The Turkish insurance market has enjoyed significant growth in recent years. In addition to the market’s scope to absorb more sophisticated products
and lines of distribution, other general positive factors such as the country's high economic growth rates, favourable demographics, high urbanisation
rates and expanding middle class, will help further drive the sector's development.
It is the desire to take a share in this promising market which has attracted major international players. This potential is apparent from the fact that
Turkey’s insurance penetration ratio to gross domestic product is below the insurance penetration experienced in developing countries and
significantly lower compared when compared to developed countries. Some foreign players such as Axa, Allianz, Groupama, Eureko, Sompo Japan,
Metlife and Mapfre have now gained a significant position in the Turkish market. It is estimated that some two thirds of the Turkish non-life market is
generated by foreign insurers. This is also the case for reinsurance coverage for which the majority of the Turkish insurance industry’s needs are
met by the international market, with the remaining coverage provided by Milli Reinsurance (Milli Reasürans A.Ş (“Milli Re”)) the sole local reinsurer
in the market with a market share of 27% in 2017. Top foreign reinsurers dominating the market are Munich Reinsurance, Swiss Reinsurance and
There are currently 68 insurance companies and two reinsurance companies registered with the Association of Insurance Companies of Turkey. Of the
62 members which are actively operating, 22 are operating in the life and pensions insurance market, and 39 companies are operating in the non-life
insurance market, and one is the reinsurance company Milli Reinsurance. Of the remaining 8 members which do not procure contracts, 7 are insurance
companies and one is a reinsurance company.
The total premium income generated by Turkish insurance companies reached some TL 46.6 billion (USD 12.3 billion) in 2017, an increase of 15 % on
the previous year, and a 2.6% growth in real terms. This demonstrates the continued growth potential of the Turkish insurance market. Of the total
premium income generated in 2017, TL 39.7 billion (USD 10.5 billion), 85.3%, related to non-life insurance, and TL 6.8 billion (USD 1.8 billion), 14.7%,
related to life insurance. Non-life insurance premiums grew by 11.9% and life insurance premiums by 35.8% in 2017, compared to 2016. The strong
growth in life insurance premiums in 2017 resulted in its share of total premiums increasing to 14.7% in 2017 compared to 12.4% in 2016. The
business segment with the largest market share of overall premium was motor vehicle third party liability insurance with TL 13 billion (USD 3.4 billion),
a 28% market share. Its share of non-life premiums was 32.8%.
Agency networks currently account for around 70% of insurance sales in Turkey. These brokers are firmly established in the market and are capable of
meeting the increasing demand for more complex products and risks. New large projects, such as airports, nuclear plants, railways, roads, and sports
events, and growth in special lines, such as in the marine and aviation sectors, are expected to create new opportunities for brokers. The new law
making earthquake insurance mandatory, and the changes in regulations regarding vehicle insurance and pensions have had a beneficial impact on
the insurance market.
Bancasssurance is becoming more prevalent in Turkey with currently over 20% of total premiums. It is now leading the premium generation in life
insurance with a market share of around 70% due to increasing bank loan insurance business. There are also other distribution channels such as
direct marketing, telemarketing and internet marketing. These are not as yet very competitive, but there is much opportunity for growth here.
The future of the Turkish insurance market is very much tied to the performance of the economy. The Turkish economy has succeeded in maintaining
a high growth rate in 2017. However, a slowdown is now expected for 2018 and 2019, though rates are still expected to be around a satisfactory 5%.
Construction and foreign trade activity have been very strong. However, the worsening current account balance, pressure on inflation and the
Turkish lira, and a reduction in consumer purchasing power are likely to put pressure on the Turkish insurance market, causing a fall in rates and a
relaxation of underwriting discipline.
The Insurance Association of Turkey (TSB) has announced for the first time the annual performance of the participation insurance or takaful sector.
Total contributions from participation insurance increased by 25.8% in 2017 to TL 1.32 billion (USD 348.3 million), compared to 2016. This
accounted for 2.83% of the country's overall insurance market. The participation non-life sector saw contributions rise by 24.5% to TL 1.27 billion
while life business soared by 77.1% to TL 47 million in 2017, according to a report in Insurance Gazette.
The 2017 data also show that in the non-life sector, compulsory motor third party liability business accounted for TL 708.6 million or 55.8% of
contributions. In line with the Participation Insurance Regulation which has taken into effect since 20 December 2017, the data for this segment is
classified under the separate title of participation insurance. New regulations and the entry of new companies are expected to boost the
participation insurance or takaful market. Seven companies currently offer takaful services.
Following the technological revolution and the increasing global usage of internet and technology in the insurance sector, Turkish market players
have started pursuing innovative and life-easing designs and creations for insurance clients. Turkish insurers have long been aware of the need to
use digital sales channels, especially since customers have started to prefer receiving policy offers through their mobile phones or computers,
instead of going for more traditional ways such as bancassurance. The need to adapt to reach new-generation customers has led insurers to
co-operate with third party retailers such as telecommunication operators, satellite services or digital appliance stores/brands to market their
relevant coverage products while the consumers are making other purchases. In terms of innovation, it is expected that the Turkish insurance
market will develop new products to create awareness on risks and ease the life of customers by giving them access to user-friendly technology.
Examples of new products recently introduced into the Turkish market in this respect are home automation systems, usage-based telematics
systems for motor vehicles, health monitoring applications and mobile accident report creating systems.
The Turkish insurance sector is primarily regulated by:
** Commercial Code No. 6102 (for insurance contracts)
** Insurance Law No. 5684 (for corporate, regulatory and operational matters).
** Turkish Obligations Code No. 6098 (for general contract law provisions).
** Private pension activities are regulated by the Private Pension Savings and Investment System Law No. 4632 and its secondary legislation.
Secondary legislation, such as regulations, communiqués, sector announcements and insurance general terms issued by the Turkish
Undersecretariat of Treasury (Treasury), also plays a major role.As the main regulatory body, the Treasury supervises the operations of Turkish
insurance/reinsurance market players, as well as the activities of Turkish branches of foreign insurance/reinsurance companies. The authority
of the Treasury only focuses on entities with an operation licence in Turkey, and does not include the supervision of foreign entities. However,
licence applications in Turkey are subject to the applicant's foreign parent company or group's compliance with certain requirements on
financial strength and good standing, the absence of criminal exposure and the holding of a valid licence in its home country.
Recent regulatory changes
Since the beginning of 2016, below are a number of major system changes have been introduced to the Turkish insurance market which have
improved the regulatory framework and have helped to bring the industry into line with international practice :
** Amendments to the Insurance Law. Article 11, mainly governing insurance agreements, was slightly amended following the publication
of an omnibus bill in early 2017 and a new paragraph regarding equivalent spare parts was included into aforementioned article. According
to the provisions of this amendment, principles and procedures regarding the use of certified equivalent spare parts will be further determined
under relevant general terms.
** Amendments to the private pension law. A new auto-enrolment system has been introduced with effect on 1 January 2017 through an
amendment made to the existing Law on the Private Pension Saving and Investment System. For the purposes of implementation of the new
auto-enrolment system, several secondary legislations have also been published to clarify principles and procedures. Mainly companies with
employees under 45 years of age will be subject to this auto-enrolment system. However, different opt-in dates have been determined for each
employee working in the private and public sector. Companies operating in the private sector with more than 100 employees and companies
operating in the public sector (for example, general and special budgeted administrations) with more than 250 employees are subject to this
system as of 1 June 2017. In February 2017, following the implementation of the auto-enrolment system, the General Communiqué No. 5 of
the Financial Crimes Investigation Board was also amended to ease and clarify the client identification verification process within the scope
of the auto-enrolment system applicable to employers and private pension companies.
** Regulation on Working Procedures and Principles of Participation Insurance. This Regulation sets out for the very first time in Turkey the
procedures and principles of takaful and retakaful, which will be managed through mubadarah, wakala or hybrid management models. All
participation insurance/reinsurance companies must establish an advisory committee (or procure such services from an external provider) to
ensure the security and reliability of the participation system. This advisory board must report to the board of directors of the company.
Provisions of this Regulation will be effective as of 20 December 2017.
** Regulation on Processing and Protecting the Privacy of Personal Health Data. This Regulation sets out the main principles on the
protection, process, transfer and removal of personal health data and the establishment of the central health data system in line with the
provisions of Law on the Protection of Personal Data. This Regulation and the Law on Protection of Personal Data No 6698 state that personal
data cannot be processed without the prior explicit consent of its owner except in certain conditions set out by the law. In this respect, the
Treasury issued an opinion in April 2017 concerning insurance companies and indicated that certain data will be considered a legal
requirement falling under the confidentiality liability of insurance companies, and not deemed as a breach of this Regulation and the Law on
the Protection of Personal Data.
** Regulation on State Contribution to Private Pension System. The Regulation sets out the main principles on the calculation, acquisition
and payment of contributions to the private pension system. The Regulation also defines transactions regarding the state contribution
** Amendment to the Regulation on the Capital Adequacy Calculation and Assessment of the Insurance, Reinsurance and Private Pension
Companies. Following the amendments made to the Regulation on the Implementation Principles of the Motor Third Party Liability (MTPL)
Tariffs, such changes have also been reflected in the Capital Adequacy Amendment Regulation, together with a few changes on capital
adequacy provisions. This Amending Regulation provides that 1) risk calculation on an excessive premium increase has been removed from
the risk items taken into account for the capital adequacy calculation; 2) premiums transferred to the High-Risk Insurance Pool must not be
taken into account when calculating the underwriting risk; and 3) at the request of the insurance company, the Treasury is entitled to extend
certain time limits applicable to protective measures to be taken by the insurance company in the event of a decrease in the equity capital /
required equity capital ratio below 100%.
** Communiqué on the List of Reinsurance Companies Satisfying the Financial and Technical Criteria. According to Article 8 of the
Regulation on the calculation and assessment of capital adequacy of insurance, reinsurance and private pension companies, the Treasury
published the list of reinsurance companies satisfying financial and technical criteria on 10 May 2017. This enables risk ceding insurers to
benefit from a lower coefficient for the calculation of equity capital under the "second method" foreseen by the aforementioned Regulation.
** Communiqué on Submission of the Independent Audit Report and Reinsurance Report through Electronic Environment. This
Communiqué has been issued to inform independent audit firms and insurance companies that they must submit their reports to the
Treasury in electronic format by the end of 2017.
** Communiqué on the Reserves Regarding On-Going Risks. This Communiqué introduces a new calculation method of amounts to be
reserved for ongoing risks. This new method will only be applicable for the following branches; Car insurance (that is, Casco), Mandatory
Motor Third Party Liability Insurance (separately for mandatory traffic insurance and liability insurance sub-branches) and General Liability
** Communiqué on the Insurance E-Application System. This Communiqué defines the procedures and principles to be used during
information requests and complaints made following the Regulation on Information on the scope of Insurance Agreements.
** Amendment to the Communiqué on the Coefficients for Underwriting Risk which is taken as a basis for the capital adequacy
calculation. This Communiqué amends Article 8 of the Regulation on the Calculation and Assessment of Capital Adequacy regarding the
calculation of required equity capital under the "second method". Following the amendment, coefficients of both land vehicles and land
vehicles liability have been changed to 0.130.
** Sector Announcement on the Mandatory Professional Liability Insurance on the Medical Malpractice. This announcement sets out
the rules on the establishment and working principles of the Medical Malpractice Insurance Pool. Policies issued as of 1 July 2017 must be
deemed within the scope of this insurance pool.
** Sector Announcement on the Designation of the Subcontracting Companies as Policyholder within the Scope of Mandatory
Personal Accident Insurance for Miners. This announcement clarifies that licensees, royalty holders or sub-contractors will be considered
as policyholders with regard to Mandatory Personal Accident Insurance for Miners.
** Sector Announcement on the Implementation of the Agency Agreements. The Treasury published two successive sectorial
announcements to clarify matters regarding the implementation of agency agreements. These announcements mainly state that agency
agreements existing before the publication of the Regulation on Insurance Agencies are not obliged to be completely renewed but must
be compliant with the Regulation. During the adaptation of these provisions, parties to agency agreements must act fairly and in good
faith. The Treasury also specified that the two-month adaptation period for provisions of the Regulation which are not substantially in
favour of agencies has been extended to three months.
** Sector Announcement on the Termination of the Mandatory Motor Third Party Liability Insurance Agreements (the "Announcement").
The Announcement entered into force as of 12 April 2017 and revoked the Sector Announcement on the Termination of Mandatory Motor
Third Party Liability Insurance numbered 2015/13 and subsequent amending sectorial announcements numbered 2016/14, 2016/26,
2016/24, 2015/41. Following the Announcement, it has been stated that the existing Motor Third Party Liability (MTPL) agreements will be
terminated automatically as of the date of the change of operator of the relevant vehicles and that the outstanding premium amount must
be calculated and returned on a daily basis. However, it has also been stated that the previous MTPL agreement will remain valid and be
applicable to the new operator / policyholder for 15 days starting from the date of the change of operator, without the need for the
payment of an additional premium.
** Decision on Procedures and Principles on the Application of Regulation on Insurance Agencies. In accordance with Article 13/A of
the Regulation on Insurance Agencies, the Insurance Agencies Executive Committee (SAIK) adopted a decision on 21 June 2016 regulate
in detail the specific areas mentioned in the Regulation. SAIK has determined terms and conditions applicable to the certificate of
conformity applications and information updates, human resources and agencies' organisations, commercial titles, minimum physical
requirements, and registration to and removal from the registry.
** General terms of mandatory motor third party liability (MTPL) insurance. Premiums of the MTPL policies have been increased
following a set of amendments made on the general terms of the MTPL during the course of 2015, including the verdict of the Supreme
Court enabling at-fault drivers to claim death indemnity from insurance companies. In this context, the Treasury introduced a new price
ceiling system through a Communiqué on the Mandatory Motor Third Party Liability Insurance Premiums, published on 10 April 2017,
to limit MTPL premiums. The Communiqué will be applicable between the 12 April 2017 and 31 December 2017. On the implementation
of the aforementioned Communiqué, the Treasury published the Regulation amending the Regulation on the Implementation Principles
of the MTPL Tariffs and the Regulation amending the Regulation on the Capital Adequacy Calculation and Assessment of the Insurance,
Reinsurance and Private Pension Companies to minimise the loss of the insurance companies which are obliged to sell MTPL within the
scope of their licence. In addition to the aforementioned news on MTPL, another set of developments took place at the end of 2016
regarding the usage of equivalent spare parts. The amended provision states that in case of damage, damaged parts will be replaced with
the original parts if it is not possible to repair or replace the damaged parts with equivalent parts or second hand/used original parts.
Accordingly, insurance companies have no obligation to replace damaged parts with original parts unless it is impossible to make a
replacement by using equivalent or used spare parts. However, on 4 October 2016, the Council of State granted a motion for stay of
execution with respect to this provision on the grounds of consumer protection. No more than six months later, on 28 January 2017,
Article 11 of the Insurance Law was amended by the Omnibus Bill No. 6770 to indicate that the rules and procedures regarding the use
of equivalent spare parts for the purpose of repair services and indemnity payments will be regulated by Insurance General Terms.
On adoption of this new legal provision, the Treasury is expected to issue new general terms or if not, a decision by the Council will
confirm the validity of the current general terms. Application of this change is expected to decrease MTPL premiums by up to 5%.