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Oct 2021

Turkey market grew in 2020 despite pandemic

Source: Middle East Insurance Review | Sep 2021

Kerim GurkanWhen envisaging where the Turkish insurance market will be in five years, it is important to consider both the environment in Turkey and broader macroeconomic trends with which its fortunes are inextricably entwined, says BMS Turkey’s Mr Kerim Gurkan.
Almost two years since the COVID-19 pandemic started, the global financial outlook is still uncertain. Virus mutations are a concern despite rising vaccination rates. Economies are recovering at different rates. The future will not be defined by the ‘virus-vaccine battle’ but by how policymakers, economies and sectors react.
The IMF forecasts global growth of 6% in 2021 and 4.4% in 2022, higher than earlier projections. The reasons for this positive change are vaccine-supported recovery, fiscal policy support and increasing global mobility. Although there is still major uncertainty in these projections, the positive impact of policy support and ‘vaccine-powered normalisation’ is expected to uplift economies.
Strong rebound in Turkey
Although the COVID-19 pandemic had a severe impact on Turkey, the economy still grew by 1.8% in 2020, making it the second-fastest growing G20 country after China. Turkish policymakers introduced a large economic stimulus programme through credit channels. This, coupled with loose monetary policy and various regulatory measures supporting credit expansion, resulted in higher economic activity towards the end of 2020.
However, policies that contributed to a strong recovery incurred costs including high inflation, current account deficit, currency depreciation and a reduction of external reserves. Companies in the private sector and financial institutions were stress-tested as debt levels rose. According to a report by the World Bank, Turkey’s ‘debt levels in the non-financial corporate sector increased by 9% of GDP in the first six months of 2020, the sharpest rise amongst emerging markets’.
Despite government restrictions on layoffs, many people were unemployed by mid-2020. Towards the end of 2020, the overall job market picked up, but conditions did not improve for women, youths and lower-skilled workers.
A combination of high inflation and high unemployment caused poverty to rise from an estimated 10.2% in 2019 to 12.2% in 2020.
The Turkish economy is forecast to pick up in real economic activity in 2021 and is projected to grow by 5%. This is due to the progress in Turkey’s vaccination programme rollout and a robust monetary policy aimed at reining-in inflation. Turkey, with reduced barriers to international trade and growing foreign direct investment, will continue to play an important role in the global economy.
Challenges for the Turkish insurance market
The economic climate presents a few challenges for the Turkish insurance industry. The rapid growth that had been evident in the overall Turkish insurance market for the past five years continued in the first half of 2020. This was especially evident in the life segment, which grew by 60% in nominal terms. The non-life market showed slower growth in 2020, with premiums of $10.3bn written last year, representing 15% growth in the market in local currency terms. The slowing in the rate of growth was most notable in the motor and motor TPL lines, which together account for more than two-fifths of Turkey’s non-life market.
The combination of a benign loss environment, abundant capital and extreme competition has put significant pressures on rates. The Turkish non-life market is highly concentrated, with 75% of the market served by 10 insurers. To win market share, insurers have been willing to sacrifice pricing – a major barrier to entry for potential new market participants. Despite these challenges, several factors promise great potential for growth in Turkey’s insurance industry. 
Resilience and opportunity
The Turkish insurance market has shown resilience to different types of crises and macroeconomic turmoil.
Compared to European benchmarks, Turkey’s insurance market is still largely underpenetrated (non-life penetration is only 1.1% compared to the European average of 3.1%) and lags in density (non-life density is $110 in Turkey compared to the European average of $983).
Also, Turkey has favourable demographics with an expanding middle class and rapid urbanisation. Half of its population is under the age of 30 and the degree of urbanisation is close to 75%.
Turkey’s rising wealth will result in increased demand 
for health insurance, life insurance and other personal insurance products while growing urbanisation will require more construction activity and improved infrastructure, as well as enhanced energy capacity; all of which will need to be insured.
Recent changes to government legislation will have a far-reaching influence on shaping the insurance market – through both introducing new lines and increased competition. For example, secondary legislation following the introduction of the commercial law has been driving the demand for new liability lines. This includes completed operations, environmental pollution, product and medical malpractice as well as niche lines such as surety, credit and loan repayment and legal protection.
Upward trajectory expected for insurance
The Turkish insurance industry, much like the Turkish economy, has the right elements in place to enable significant growth over the coming years. Barring an unforeseen economic downturn, there is every reason to believe the market will return to its upward trend. Furthermore, the insurance market can be expected to become increasingly sophisticated and, it is hoped, more open with a growing number of market participants and the introduction of new products and services. M 
Mr Kerim Gurkan is CEO at BMS Turkey.

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