XPRIMM: Which are the main challenges the Turkish insurance market is facing at the moment?
Melda SUAYIPOGLU: Turkey is a country that moves spontaneously, which makes it harder to plan ahead. While this may give you an edge in short-term issues that allow taking faster action, it also proves challenging in the medium and long terms. The main problems of the insurance sector in Turkey include low penetration levels and the presence of many companies with market shares below 1 percent and the development of price competition rather than one based in service and quality.

The greatest challenges facing the Turkish insurance sector may be listed as the low reputation scores and weak awareness of insurance policy ownership. Accordingly, insurance usage levels are significantly low. While Turkey's per capita income is above the world average, per capita insurance spending is merely a quarter of the world average and one-tenth of the European average. Insurance has yet to reach the desired level in Turkey. This is a developing sector. Low insurance levels and high insurable potential continues to draw the attention of international investors to the Turkish insurance market. While only 15 firms operating in Turkey out of a total of 58 had international capital in 2001, the number of firms with international capital has increased significantly since 2008, reaching 44 at the end 2014.

In order to secure its development, the sector must rapidly reinforce its service approach and strengthen its reputation. As a whole, the sector must develop and implement a long-term strategy aimed at raising awareness of insurance policy ownership in the society. As the industry leader, we continue to work to raise awareness of insurance policy ownership while remaining true to our principle of pricing each risk accurately and fairly as a requirement of sustainability. We have always given priority to a long-term and sustainable approach to development over short-term price movements. We always emphasize the need for competition that focuses on innovation, product and service quality rather than price competition as a prerequisite of increasing profitability in the sector. And we will act accordingly in 2015.

XPRIMM: Is profitability a challenge for the local market?
M.S.: Profitability is a chronic problem for the Turkish insurance sector. According to the data released by the Prime Ministry Undersecretariat of Treasury, the sector's total profits before tax increased by 15% year-on-year to TRY 1.8 billion in 2014. Over the same period, profit after tax grew by 12% to TRY 1.4 billion from 1.3 billion in 2013. In 2014, non-life insurance companies posted TRY 729 million in profits after tax while life / pension companies posted TRY 659 million.

The profitable branches and profitability ratios vary depending on the market conditions of each period. However, when we look from a long-term perspective, profitability is low in motor insurance branches, where price sensitivity is very high and where companies' means of product differentiation are very limited, while non-motor insurance branches including health, fire, and personal accident may be generally listed as more profitable.

At ALLIANZ, we always emphasize the need for competition that focuses on innovation, product and service quality rather than price competition as a prerequisite of increasing profitability in the sector.

XPRIMM: How would you describe the competition on the market? Which are the most competitive lines?
M.S.: As I have mentioned earlier, there is an uneven distribution of market share in the Turkish insurance sector. According to the data of the Insurance Association of Turkey (TSB), 29 of the 53 firms operating in the insurance sector in 2004 had market shares of less than 1 percent. In 2009, this was valid for 34 of 57 firms. As of the end of 2014, 43 of the 65 players in the sector had less than 1 percent market share. It's virtually not possible to survive in many sectors, let alone insurance, with a market share below 1 percent. It is very difficult to inspire confidence among the consumers in your permanence, to implement economies of scale, or to invest in innovation and service quality and human resources. And then, you are only left with price competition as a tool to remain in the market, which is difficult to sustain due to lack of economies of scale, anyway. Price competition both harms the companies and has a negative impact on the sector's profitability.

To be sure, price competition will be around this year and in the years to come as it has been for so many years in the past. But we believe that the sector must shift its competitive focus from price to service and innovation in the long term. First and foremost, insurance must be a credible and reputable sector. And the way to achieve this is to ensure sustainable profitability. The products and service quality we offer to our customers is an important part of the competition as well. For us, what matters is that our customers feel that they get their money's worth down to the last penny.

As for the most competitive fields in Turkey, taking a look at the shares of branches in the total premium generation, we see that each of the illness/health, motor vehicle, motor vehicle liability, and fire and natural disasters among non-life branches had shares of more than 10% over the last four years.

In 2014, motor insurance (motor vehicle and motor vehicle liability) accounted for almost half of all premiums generated in the non-life insurance. Compared to the previous year, both branches' share declined by nearly two percentage points. The share of life branch in both generated premiums and damages paid was 16% in 2011, and by 2014, generated premiums declined by three percentage points while the share in total damages paid saw no significant change. In parallel with the distribution in premium generation, the share of each one of non-life branches including illness/health, motor vehicles and motor vehicle liability in total damages paid has been more than 10% over the last four years. In the meantime, the share of automobile insurances in the premium generation of non-life branches was 47% in 2014 while its share in the damages paid stood at 59% over the same period.

XPRIMM: Which insurance lines do you believe hold the highest growth potential? Which of them already showed signs of growth?
M.S.: The increasing sense of responsibility, which is the result of greater legal awareness thanks to the new Turkish Commercial Code and changes in laws and legislations, also raised the importance of liability insurance as well as other insurance branches, and this importance will continue to increase going forward.

In today's globalizing world, executives are at times forced to make rapid decisions after evaluating many variables. Accordingly, as the leader in professional liability insurance, ALLIANZ Sigorta A.S. strives to offer different solutions on new risks. Today, with a view to best looking after the interests of their customers, professionals strive to act without having to worry about any possible consequences of their actions. ALLIANZ leverages its global experience to offer professional and executive liability insurance coverage for a variety of professional groups so as to meet such needs of the professionals in Turkey. We believe both this need and the subsequent demand will become increasingly important in the coming period.

In addition, we are witnessing an increase in the number of first public offerings in line with companies' growth strategies and new investment plans. A public offering process requires intensive work right from the preparation stage. With regard to the prospectus, which is the public offering document, the company as well as all other parties involved in the prospectus have certain liabilities. The Public Offering Insurance (POSI) offers companies that file for a public offering, the offering shareholders, and executives with coverage for liabilities relating with the prospectus.

XPRIMM: Are there any changes needed to the regulatory framework? In what way?
M.S.: Recently, several regulations have been made in the insurance sector that aimed to fill the gap in the fields that required legislation. While there are no issues that are in urgent need of regulation in the short-term, we would like to emphasize on the need to take actions as soon as possible for further legislation should we encounter any problems with the recent regulations.

XPRIMM: Which are your objectives, plans or expectations for the years to follow in the insurance sector?
M.S.: ALLIANZ Turkey has been operating in the Turkish market for more than 90 years and the Group has invested over EUR 1 billion in the country to date. As the world's biggest and leading insurance and finance company, ALLIANZ is a long-established, reputable and global brand with a history of 125 years, which provides us with global know-how, investment power, expertise, reliability, and competitive edge advantages in Turkey. And specifically in Turkey, we enjoy the advantages of being both a global company and as a local one operating here for nearly a century.

We were the leader of the insurance sector in 2013 and 2014. In recent years, we invested more than EUR 1 billion in Turkey. Most recently, we added to our investments ALLIANZ Tower, which will become our new corporate headquarters located near the Istanbul Finance Center on the Asian side of the city. This investment once again proved how much we believe in Turkey and that we are here to stay.

Both economic and demographic changes and the development in the profile of persons that purchase health services impacts the health sector, which has been developing rapidly. Accordingly, we are quickly restructuring our infrastructure and services in line with our goal of differentiation through our service quality and services in digital channels. We believe that our products, which are backed by highly accessible technology with easily understandable content, will spread through all our channels also with the support of our digital media. In particular, we expect an increasing preference for products enriched by technological infrastructures that offer additional service models going forward. Therefore, ALLIANZ Turkey's targets also include sustaining its digitalization projects launched with a view to boosting customer satisfaction and productivity. Implemented with a view to maintaining our lead in customer services, these projects will soon start to bear their fruits. Our ongoing investments in our people will gradually change the face of our company, rendering the distance we have covered towards attaining a more innovative and a more dynamic organization more visible. We will maintain our lead without compromising on sustainability, and most importantly, continue to provide a greater number of customers with higher quality services.