The growth potential in Turkish insurance market is expected to increase as structural reforms are implemented, says Mr Alpay Ertekin, associate partner with the Transaction Advisory Services unit of the global professional services firm EY.
According to a report in Insurance Gazette, the motor sector reflects this potential. Mr Ertekin notes while the number of vehicles in the country exceeds 22m, the number which is covered by compulsory third party liability insurance is 14.1m.
He says that the use of technology will tailor motor insurance cover more specifically to the driver as it will factor in traffic records and reduce premiums for cautious drivers. This will help increase the coverage rate
In order to evaluate the growth potential of the sector, it is necessary to examine developments, both recent and planned.
The focus in the insurance sector is to contribute to the objectives of the New Economic Programme. One means of doing so is to increase the domestic reinsurance capacity in Turkey, hence the establishment of a national reinsurer. The Turkish Grand National Assembly approved earlier this year a law providing for the establishment of Turk Reasurans (Turkish Re).
Turk Reasurans will manage the natural disaster risk pool, and is expected to provide a cost advantage and domestic reinsurance capacity to the pool. With the magnitude 5.8 earthquake that affected Marmara region in September, awareness of natural disasters has increased in Turkish society and this is reflected in sales of quake insurance.
As sales of mandatory quake policies increase, insurance for other natural disaster (flood, etc) has started to come to the forefront.
On the private pension side, the sector has entered a rapid growth trend. EY expects innovation and growth, and regulations covering automatic participation in pension plans to be laid down that would promote this class of business. The reforms would support sustainable growth by creating cheap long-term credit. Since the accumulation of funds in the Private Pension System is of great importance, EY considers these developments as positive.
The dominance of foreign investors in the sector has reached 60%, mainly due to M&As in the last 10-12 years. EY said, “If we look at recent insurance sector transactions, we see that foreign interest and consolidation continue.”
An example lies in the non-life segment where HDI Insurance, a subsidiary of German insurance giant Talanx, acquired Ergo Sigorta this year and Liberty Sigorta last year.
In addition, macroeconomic conditions also have a significant impact on the Turkish insurance sector.
In this respect, Turkey has entered a period in which political uncertainties have decreased after the end of the local elections. At the same time, inflation is on a downward trend; the current account deficit and exchange rate volatility have decreased; and signs of rebalancing in the economy are seen.
The Turkish insurance sector, with its low penetration rate compared to the average for Europe and the world, is open to development.
EY said, “We expect the insurance sector to maintain its attractiveness and attract the interest of foreign investors with the support of the state in strategic areas—digitalisation, the development of insurance awareness and qualified manpower.”