XPRIMM: After the impact that the Covid pandemics in 2020, 2021 was expected to be a recovery year. However, the business environment remained a challenging one in Türkiye. How do you comment on the Turkish market’s evolution in 2021? Which are the main challenges the Turkish insurance market is currently facing? Is profitability a challenge in the current macroeconomic environment?
Mehmet Akif EROĞLU: After the Covid pandemic, the world is also facing a number of challenges. Global growth outlook is slowing, vulnerabilities are rising, commodities markets remain volatile and geopolitical tensions persist. The uncertainty around the world outlook is high and there are several notable risks such as high inflation, rising interest rates, exhange rate fluctuations, supply chain distruptions, supply bottleneck, energy crisis and geopolitical risks.
The business environment and more specifically insurance sector in Türkiye is inevitably affected by this situation that the world is facing. As known, slowing growth typically leads to lower demand for insurance. Also, the main inflation impact will show in rising claims costs. Besides, in motor, claims costs have risen as shortages of parts have kept the prices of new and used vehicles high level. Motor liability as well as accident and general liability business will also be impacted, with high inflation feeding through into bodily injury claims. In construction, supply disruptions and labour shortages have led to an increase in repair and rebuilding costs and return higher claims. In addition to the effects on the claim side, we are expecting and observing the effects on the premium side as well. In the non-life sector, premium growth will boost due to the inflation, but in real terms we expect to see a reduction in premium income.
When we look at the numeric figures, in 2021, gross written premium in the insurance market rose by 28 % compared to the previous year and reached to 105.4 billion TL. 87.6 billion TL of premium production was realized in non-life insurance branches, 17.8 billion TL in life insurance branches. Total assets of insurance, reinsurance and pension companies reached to 429.2 billion TL by an increase of 39.4% in 2021. The share of non-life companies in the total asset size is 125.3 billion TL, the share of life and pension companies is 294 billion TL and the share of reinsurance companies is 9.7 billion TL. The number of participants in the private pension system reached to 7.1 million by the end of 2021, and the fund amount of the participants increased to 227.9 billion TL with the state contribution.
As of the end of 2021, the sector recorded 12.9 billion TL a profit after tax, of which 6.4 billion TL in non-life insurance companies, 5.6 billion TL in life and pension companies, and 0.8 billion TL in reinsurance companies.
Unfortunately, non-life sector profits will come under pressure this year and in the following years depending on the course of world economic outlook.
XPRIMM: Judging by the results of the first half of 2022, did the Turkish market feel the impact of the war in Ukraine? What are your expectations for the year-end results?
A.M.E.: It is impossible for an event or an affair occurring in any corner of the world not to affect you in a connected world. So, the Turkish market as well as other countries’ markets feel the impact of the war in Ukraine. The war disrupted the global supply chains and pushed up energy, food, raw materials prices substantially, aggravating inflationary pressures at a time when the cost of living was already rising rapidly around the world. In insurance sector, inflation resulted in rising claims costs and therefore putting a negative pressure on profitability.
When we look at the results of first half of 2022, gross written premium in the Turkish insurance market rose by 80% compared to the same period of the previous year and reached to 90.9 billion TL. 77.7 billion TL of premium production was realized in non-life insurance branches, 13.2 billion TL in life group insurance branches. Total assets of insurance, reinsurance and pension companies reached to 534.3 billion TL. The number of participants in the private pension system reached to 7.5 million and the fund amount of the participants increased to 317.7 billion TL with the state contribution.
The measures we have taken have lessened the effects of the war. Special Risks Management Center was established in order to provide faster solutions for risks that do not have insurance and reinsurance coverage and for risks that are peculiar. In this way, an important contribution has been made to the solution of the food supply problem caused by the Russia-Ukraine crisis for our country. We will also continue to take measures to minimize the effects of Ukranian war in our sector.
XPRIMM: Extremely high inflation is one of consequences of the war in Ukraine impacting the entire Europe. In Türkiye, the local currency’s depreciation against Euro and USD adds to this burden and already affects the local market results already for several years. What are the business lines most affected? Is claims inflation an issue for the Turkish insurance companies?
A.M.E.: Yes, claims inflation is an issue for the Turkish insurance companies. We are expecting and observing that property and motor insurances are to be most impacted. But, in order to mitigate inflation risks, companies are taking measures such as re-pricing insurance risks to reflect elevated claims costs and diversifying and looking for new products with lower risk profile.
XPRIMM: How would you comment on the current status of the local motor insurance market? According to statistical data, after the decrease in 2020 owed to lockdowns, in the first half of 2021 paid claims increased at very high rates, much higher than the premiums growth rates. What about the motor insurance lines’ profitability?
A.M.E.: Motor insurance lines’ profitability is affected negatively due to rising claims costs. High inflation resulted in increase in claims costs. Besides, in motor, claims costs have risen as shortages of parts have kept the prices of new and used vehicles high level. Moreover, high increase in minimum wage resulted in high increase in bodily injury claims, which in return affected the motor insurance lines’ profitability.
In order to lessen these negative effects; we, as IPRSA, have taken some measures. With a legislative amendment, we increased the maximum premium amount in Motor Third Party Liability Insurance and decreased the no claim premium discount rates.
XPRIMM: Some of first measures taken by IPRSA after you took the office are referring to the MTPL insurance line. Why that and what is are goals of these measures. Will there be any other changes?
A.M.E.: The relevant articles of the Highway Traffic Law have been amended in order to pay the compensations to the beneficiaries injured as a result of traffic accidents in a fairer and faster manner. With the said amendment, the compensation system was clarified by drawing a legal framework for compensation for loss of value, permanent disability and loss of support within the scope of compulsory traffic insurance. If needed, there will be any other changes.
XPRIMM: How would you comment on the current level of the NatCat housing insurance coverage? While the protection against the earthquake risk has somehow improved every year, what are, in your opinion, the lessons learned from the experience of the Aegean earthquake in 2020? Also, beside the earthquake risk, how well are protected the Turkish citizens for the increasing risk of extreme weather events?
A.M.E.: As IPRSA, we have been working on expanding the level of NatCat housing insurance coverage and designing a Compulsory Disaster Insurance as a holistic disaster insurance product.
When it comes to the lessons learned from the experience of the Aegean earthquake in 2020, experiences taken from the past earthquakes will be important guide in minimizing loss of life and property in the future earthquakes. Among all the natural disasters, earthquakes are potentially the most destructive in terms of both loss of life and property damage. Earthquake insurance claims are also the lengthiest to assess, given their low-frequency and high impact. The insurance industry is playing a key role in post-disaster financing. Appropriate insurance and other risk transfer mechanisms can greatly accelerate the recovery process. Experience of Aegean earthquake contributed to the increase in risk awareness.
Taking into acount that one of the most important issues on the world agenda is climate change and with the thought of our duty for the future of the world, necessary legislative changes were made in order to support insurance and pension companies to invest in green financing products issued by financial institutions. With these changes, companies were encouraged to invest more in these products. With regard to sustainability, which comes to the fore with green financing, our Authority carries out activities such as premium incentives for environmentally friendly vehicles, green insurance products, digital information disclosure, e-policy project and similar studies. In addition, by evaluating the effects of climate change and the demands of our citizens, the scope of coverage in the field of state-supported agricultural insurance was expanded. In order to reduce risk and uncertainty in the agricultural sector, the pilot implementation of the state-supported income protection insurance, which protects producers against losses arising from price fluctuations as well as yield decreases, was initiated.
XPRIMM: What are IPRSAs priorities for the forthcoming period? Are there any regulatory changes planned?
A.M.E.: As SEDDK, we continue our efforts to protect the rights and interests of the insured and participants, to deepen and expand our sector, to establish a safe market order that will ensure the effective execution of sector activities in cooperation with all our domestic and foreign stakeholders, and thus contribute to the national economy. For the forthcoming period, we have planned projects and regulatory changes.
To protect our country's agriculture and farmers from the negative effects of climate change; the scope of agricultural insurance will be expanded on the basis of the products and risks it protects.
Implementations will be developed to provide discounts in the tariffs of insurance products and services that can contribute to the green transformation process.
New insurance products will be developed against cyber risks.
Participation insurance and pension implementations will continue to be supported in order to meet the insurance and private pension product and service demands of our interest-sensitive citizens and to benefit from the assurances offered by the system.
“Compulsory Disaster Insurance", designed as a holistic disaster insurance product to protect our citizens against the grievances that may arise from natural disasters and to alleviate the public burden, will begin to be offered to homeowners