Insurance agencies in Turkey are seeing falling insurance demand due to increased interest and inflation rates while operating costs are rising, according to Mr Resit Cakas, chairman of the Insurance Agencies Association (SAB).
He said that 2018 was an extremely volatile year, especially the second half of the year because of exchange rate movements, rising interest rates and higher inflation rates, according to a report in Insurance Gazette.
Consumer spending decreased significantly with, in particular, the sales of vehicles plunging by 35% while housing sales came almost to a halt, he said.
The economic conditions prevailing in 2018 will be reflected in the performance of insurance agencies from the beginning of 2019, he said. He expects agency expenses (like the costs of manpower, utilities, etc) to rise by around 30%. With commission rates unchanged, agencies will have to increase sales by at least 30% in order to maintain the same financial results as last year.
He argues that insurance agencies should change their sales patterns, such as turning to new products, so as to avoid current difficulties. “Agencies have to go for different products besides accident and fire. Today, we need to recognise that professional liability insurance, surety insurance or various financial lines are being talked about by consumers.”
He said that there are close links between the agencies and insurers given that currently, more than 60% of premium production is generated by agencies. “It should be kept in mind that the shrinkage in the agency system will directly affect the whole insurance sector,” he said.
Measures to improve performance
He urges insurance companies to consider agencies as solution partners and contribute to the development of agencies by taking concrete steps in this direction, such as drawing up a legal arrangement that will accord long term protection to the agency system.
Risk acceptance processes should be undertaken that would prevent possible market contraction and increase production, he said.
Insurance agencies inculcate customer loyalty, something which should be taken into account, he adds. Commission and support systems to be given to insurance agencies should be designed accordingly. He urges insurers to increase commission rates for agencies.
Mr Cakas said that if the necessary measures were taken in advance and the correct actions implemented, it might be possible for insurance agencies to emerge from 2019 without experiencing serious difficulties.
He pointed out that real growth in the insurance market was negative last year because the inflation rate stood at 21.6%. In comparison, the insurance industry in Turkey posted growth of 14.7% in total premiums to TRY50.42bn ($9.6bn) in 2018, compared to 2017, according to data released by the Insurance Association of Turkey. Of this total, non-life premiums increased by 17.1% to TRY43.6bn while life premiums stood at TRY6.8bn, representing marginal growth of 1%.