News Middle East19 Apr 2021

Turkey:Insurers suffer estimated annual loss of at least $18m through abuse of arbitration process

| 19 Apr 2021

Estimates are that abuse of the insurance arbitration process costs insurers losses of TRY150m ($18.6m) to TRY200m annually.

There are around 15,000 such abuse cases a year, according to a report in Insurance Gazette. The majority of such cases filed before the Insurance Arbitration Commission are traffic insurance-related.

Mode of operation

The questionable practice involves a claim 'dispute' being followed up by a lawyer through a power of attorney. The power of attorney is often given to more than one lawyer, making withdrawal of the case extremely difficult if the insured were to change their mind. If the insured wants to withdraw the power of attorney, a separate notary fee must be paid for each lawyer. For many vehicle owners, this price is higher than the cost of repairing the vehicle.

The process is carried out based on documents and photos. The claim forms and relevant documents are prepared, with the claims inflated, and the package is sent to the insurance company to make compensation without allowing the latter to see or inspect the vehicle. The cases are sent directly the Commission after the 15-day settlement period has passed. In other words, there is not enough time for insurers to change the package until arbitration. Arbitrators decide the case based on documents and photographs.

Apart from insurers, insured persons also suffer from these irregular transactions. Most of the time, the insured parties are not aware of the scam, the compensation amount collected is not paid to them, and their vehicles are repaired at low prices compared to the compensation sum paid by insurers.

As insurance companies pay much more than the actual damage value as a result of the arbitration process, the damage/premium rates of the victims in the policies also increase. The insured can only see the real amount paid in their claim file when they check the e-government system or when they want to buy a new policy or renew a policy, and when they question high historical damage information.

Fairness

On a brighter note, there have been promising developments in arbitration decisions of late. In some recent cases, the arbitrators find that failing to allow the vehicle to be inspected by the insurance company or the expert appointed by the insurer is against the principle of fairness. Arbitrators have rejected cases based on the grounds that refusal to allow the determination of the alleged damage and damage amount is against the general terms and conditions and that the compensation amounts requested by the petitioners are excessive.

 

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