Magazine

Read the latest edition of AIR and MEIR as an Interactive e-book

Mar 2024

Turkey: Insurance Europe voices concerns over changes in insurance regulations

Source: Middle East Insurance Review | Sep 2017

Recent changes and proposals to the Turkish regulatory framework are raising significant concerns for European (re)insurers operating in the Turkish insurance market, said the European insurance and reinsurance federation.
 
   These changes threaten, if not remove, the ability of (re)insurers (including European) to continue placing business on an economic basis and in line with appropriate business and risk management practices, the Insurance Europe said in a country fact sheet on Turkey.
 
   Current and planned measures that are of concern to European (re)insurers include:
  • Premium cap: In April 2017, the Treasury started imposing premium caps for motor third-party liability (MTPL) insurance for all types of vehicles. The caps take into account the bonus-malus system and vary per vehicle type and city of registration. As the caps are set below economic costs, it is estimated that their introduction will lead to significant losses for European players active in the market.
  • Investigation by the Competition Authority: In parallel, the Competition Authority started a preliminary investigation on the suspicion that some insurers (including European insurers) stopped offering MTPL policies since the introduction of the premium cap. The basis for the investigation is the fact that provision of MTPL insurance is compulsory for all entities who have a licence.
  • Pooling system: In July 2017, the Treasury introduced a pooling system for MTPL policies representing slightly below 10% of the market and about a quarter of the overall premiums underwritten on the market. These policies will be pooled together and the burden redistributed to all market players. Half of the pooled risk is redistributed to all market participants at an equal share. The other half is assigned based on individual market shares of licensed entities. The underlying calculations for the redistribution are applicable retrospectively from April 2017 (when the premium cap was introduced). No risk is maintained by the Treasury, so the pooling mechanism acts as a means of redistributing risk across the market. In addition, insurers that have transferred their policies to the pool pay a commission as a contribution towards the pool’s expenses. With this system, the Treasury hinders any limited competition that it claimed to still have occurred since the price cap was introduced.
  • Other planned measures: In June 2017, the Treasury further issued a new draft for MTPL general conditions which, if applied as such, would cause a significant increase of claims costs, and hence exacerbate the losses and difficulties the market is already facing due to the price caps. Further discussion of the draft are expected towards the end of the year.
 
   Over the past two years, the Turkish Treasury has taken several measures with the clear objective of actively imposing lower than economically-justified prices for motor MTPL insurance, said the Insurance Europe. Overall, this led to a significant decrease of premiums in real terms (more than 30%) in 2016. 
 
   Additionally, the cost of claims has been soaring (around 25%) following the decision taken by Turkish authorities to increase the minimum wage by 30% on 1 January 2016.
 
   The regulatory stance towards actively lowering prices goes directly against the standard in other OECD countries where the solvency of (re)insurers forms the centre of regulation, and where adequate pricing and capital are looked at as key priorities, Insurance Europe said. M 
 
| Print
CAPTCHA image
Enter the code shown above in the box below.

Note that your comment may be edited or removed in the future, and that your comment may appear alongside the original article on websites other than this one.

 

Recent Comments

There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.