Aiming to offset losses from the motor insurance business, insurance firms are diversifying their product ranges and seeking to grow the market and increase coverage.

Mine Ayhan
General Manager
Generali Sigorta
Levent Şişmanoğlu
General Manager
Ray Sigorta

What is your assessment of the state of the non-life insurance sector in Turkey?

MİNE AYHAN There are 55 insurance companies operating in Turkey, offering pension, life, non-life, health, and other kinds of insurance. There are also 14,000 agencies and intermediaries, both tied agencies and multi-mandates. Tied agencies are exclusive agencies. We also have brokers, around 45 of them. The top five are the global ones. Around 65% of all premium production is via agencies, 10-15% from banks, and 10-15% from brokers, but the dominant distribution channel is agencies. The motor business dominates, even though it's loss making. The non-motor business, especially property policies for industrial risks, is the most attractive for insurance companies now. Everybody's going for that sector to balance the loss-making motor business.

LEVENT ŞİŞMANOĞLU The insurance market has been growing by around 20% nominally over the last six or seven years. In real terms this represents more than 8% growth every year. It is expected to increase by 15% or more, nominally, in 2011 and in the upcoming years. The predicted rate of inflation is 5-7%, meaning that real growth will be around 8-10% annually. This is mainly due to new construction projects. In that respect, engineering insurance lines are growing faster than all other lines now. Transport projects are also growing very quickly, and so the total industry will experience a nice growth rate in these two lines. After developments in these areas are complete, other growth lines will be brought into the picture, such as fire, liability, and employer liability insurance. Another area where we see growth is in professional indemnity policies for doctors, architects, lawyers, and accountants. We expect this area to grow very rapidly in the coming three to five years.

The sector as a whole in Turkey made a loss in 2010 even though penetration rates increased. Considering this, do you feel premiums are rationally priced?

MA The quality of the risks determines the premium rates. When we consider the quality of the risks involved in Turkey, the premiums come across as too low, perhaps by 5% to 10%. Because of the low margins of companies, especially after 2007, they have tried to cut costs, and safety measures are the first thing a lot of companies cut back on when trying to reduce costs. But that in turn means that our premiums will have to be higher and we will have to charge these companies more. So when we consider all that, when we consider that the risks are not good, the premiums seem low. If the risks were better, these premium prices would be fine. But as you say, the sector as a whole made a loss in 2010, and that means premiums are low.

What has been the impact of regulatory changes in the Turkish insurance industry?

The insurance sector didn't have specific regulatory laws in Turkey until 2007. The new requirements, which are very contemporary, have helped to develop the market. Life and pension companies are under the strict control of the regulatory authorities. The insurance business is audited regularly. The companies have their own internal audit and control departments and build their own risk management systems. We are entering a new era in the insurance business and are more cautious. As well, in terms of asset and risk management we pay more attention to external effects.

In what lines do you see the most potential for growth and profitability?

MA The property business, some engineering lines, and some package policies for SMEs look attractive. Many banks are offering specialized products for SMEs. Many don't require insurance, but we try and target them anyway, and the competition is fierce at that level. Various individual lines are also important for us. However, after the crisis, many companies cut back on costs, and that had a negative effect on the insurance sector.

Motor insurance in Turkey has been growing in size, but losing money across the board. Do you feel there should be a change in the premium structure?

Nowadays we feel some changes are afoot because of the losses over 2010. Naturally, the motor lines will continue to increase. We have some 14 million insurable houses in Turkey. Around 3.2 million of those houses have compulsory earthquake insurance. For all other types of policies, such as fire and theft, the total industry has 2.5 million policies. We find the penetration rate is very low and so we should look for a higher level of penetration in these retail lines of business. In motor lines this is not the case. Total motor damage policies are around 3.5 million. If you look at the portfolio of registered vehicles—14 million—half of them are younger than a decade old. The penetration rate is 50% and data is provided by a central database that was founded by the Association of Insurance Companies. Each company reports to this database on a daily basis by electronic transfer, showing all types of claims. The online central database, called Tramer, gives access to everyone through the web. For example, if there is a potential new customer, it will show the history of his or her last insurer and the types of claims made so that I can adjust my price accordingly. This does not exist on continental Europe.

What's your forecast for the Turkish economy?

MA I think the economy will grow at a stable rate in 2011. I expect a nominal growth of 10-15% in the insurance industry, so factoring in inflation, real growth will come to anything between 5% and 10%, although it is very unlikely that it will grow by 10%. Life and pension providers might be able to paint a more optimistic picture as they are happier than us in general.

According to the government's three-year development plan announced in September 2010, it was planning to close 2010 with a 6.8 % growth rate. The growth rate was actually 8.9%. It also expected a real-term growth rate of 5-6% yearly, followed by an inflation rate of 5-7% yearly. The main problem of growth in Turkey is related to the current account deficit, which is around 7% of GDP. The government is in a position to choose between the unemployment rate, which is around 10-11%, and the current account deficit, which helps economic growth. This current account deficit is widened mainly due to investment goods and Turkish energy needs—petroleum specifically. The country should find a solution to its petroleum needs domestically and lower its energy imports. Another challenge Turkey faces is its young population, with a high proportion between 10 and 18 years old. The average age of 29 years will increase quickly to 36-40 very quickly, and so Turkey must ensure that these younger people can find stable jobs for the long term. This means new investments to create new jobs. Foreign investment will be very welcome. In 2010, foreign investment was almost €8 billion and is expected to reach €10 billion in 2011.