The Undersecretariat of the Treasury has announced that a new regulation, called "Procedures and Principles of Participation Insurance Business", has been published in the Official Gazette. The regulation was gazetted on 20 September and will take effect three months after its publication.
The aim of the regulation is to set out the procedures and principles regarding participation insurance or takaful, ensuring the reliability of the system and the rights and interests of participants.
The regulation provides for an alternative insurance model based on solidarity and common risk sharing. The model is also targeted at those who avoid traditional insurance products because of their sensitivity towards the charging of interest. Accordingly, companies that engage in participation insurance will deal with non-interest-bearing financial instruments.
In the interest-free insurance system, policyholder premiums, which are considered contributions, are placed in a common fund from which claims are met. At the end of the year, any surplus (including after deduction of expenses) is not kept by the company nor its shareholders but is instead returned to policyholders in the form of cash dividends or distributions.
Among other measures, the regulation require companies that are engaged in participation insurance to establish an advisory committee.
There will be a three-year transition period for window operations, meaning that those that now operate a takaful window will have three years within which to establish a separate takaful company.
Where there is no provision in the regulation for participation insurance, the relevant provisions of the insurance legislation will apply.
At least eight insurance companies are currently offering takaful products in Turkey.