The Turkish insurance industry ranked 18th amongst the world’s insurance industries in terms of gross written premium at the end of 2012. Supported by a growing economy and a young population, the industry is also among the fastest-growing in Europe. Unlike most other developed Western countries and European nations, the Turkish insurance industry remained largely unaffected by the global financial crisis. The industry’s gross written premium nearly doubled from TRY12.5 billion (US$8.0 billion) in 2009 to TRY24.6 billion (US$13.0 billion) in 2013.
A low penetration rate of 1.4% in 2012, as compared to a European average of 7.6%, combined with an improving regulatory framework and stable GDP growth, is expected to drive further growth. However, due to Turkey’s predominantly Muslim population, Sharia-compliant Takaful risk-sharing might be more attractive than conventional insurance practices to parts of the population. According to a survey conducted by Ernst & Young, Turkey’s participating banks held TRY70.0 billion (US$39 billion) of Islamic assets by the end of 2012; a figure which is expected to grow to TRY244.1 billion (US$121 billion) by end-2018.
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Turkey’s geographical location between Europe, Asia, Africa and the Middle East gives it potential for business growth. It also attracts foreign investors looking to access 56 export markets in Eurasia, Africa and the Middle East. Foreign insurers have moved into Turkey to take advantage of these opportunities. According to the Insurance Association of Turkey, 68 insurance companies operated here in 2013. Of these, 36 operated in the non-life insurance, 27 were active in life and pension insurance, and 56 (including both life and non-life insurers) offered personal accident and health products. There was only one domestic reinsurance company: Millî Re, although global reinsurers such as Swiss Re and Lloyd’s were active.
Industry growth was led by the non-life segment, which accounted for 70.9% of the total gross written premium in 2013. The segment was valued at TRY17.5 billion (US$9.2 billion) in 2013. The life segment accounted for 15.5% of the industry’s gross written premium in 2013. The individual whole life category led the segment, contributing 85.7% of its gross written premium in 2013. Favourable demographic factors, with 67.4% of the population aged 15-64 years, and rising life expectancy, coupled with sustained GDP growth, spurred demand for life insurance.
The Turkish insurance industry is expected to consolidate due to increasing competition and improvements in regulations to align it with global standards such as Solvency II. In March 2013, Allianz entered into an agreement with Turkish lender Yap? Kredi Bank to purchase its insurance business, Yap? Kredi Sigorta, a leading Turkish property insurer.
Overall, the insurance industry’s gross written premium is expected to reach TRY42.9 billion (US$21.3 billion) in 2018. Steady economic growth, increasing Foreign Direct Investment (FDI), new product development, the adoption of technology, and regulations to cover diverse customer needs should support the growth of the insurance industry. However, a high combined ratio, a depreciating currency, competition from Takaful insurance, and a changing regulatory environment will act as barriers to growth.
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By GlobalDataSegment outlook
The life segment accounted for 15.5% of the insurance industry’s gross written premium value in 2013. Led by sustained economic growth and favourable demographics, the segment’s gross written premium expanded at a robust CAGR of 17.8%, increasing from TRY2.0 billion (US$1.3 billion) in 2009 to TRY3.8 billion (US$2.0 billion) in 2013. The segment’s penetration rate also increased from 0.20% of GDP in 2009 to 0.24% in 2013, although it still remains the lowest in Europe.
By the end of 2013, there were 27 insurers operating in the segment, of which the leading 10 accounted for 84.8% of gross written premiums; the Turkish life insurance market is highly competitive, with both domestic and foreign insurers active here. Ziraat Hayat ve Emeklilik was the leading life insurer in the country with a 23.4% share. Additionally, Fiba Emeklilik ve Hayat Sigorta entered the market in 2012 and provides both life insurance and private pensions. There has also been recent M&A activity: in March 2013, Allianz acquired a 93.9% stake in Yap? Kredi Sigorta and an 80% stake in Yap? Kredi Emeklilik, both subsidiaries of Yap? Kredi. This means that Allianz now claims a share of 7.1% of gross written premiums, making it a top-five Turkish life insurer.
The individual whole life insurance category dominated the segment in 2013, accounting for 80.0% of its gross written premiums. This was followed by: individual pension products (11.0%); group life cover products (6.6%); and individual general annuity products (2.4%).Pensions grew the fastest due to the introduction of new pension regulations. The amendments made in the pension laws in June 2012 were implemented from the beginning of 2013. This has triggered major reforms in the private pension system, wherein the government contributes up to 25% to everyone who makes pension contributions. On an annual basis, the category displayed a robust growth of 38.9% during 2012-2013.
The individual whole life insurance segment primarily comprises of term assurance and yearly renewable term assurance plans. These plans were in high demand due to the large younger population, which prefers traditional insurance products due to their low prices and high risk coverage. Companies such as Ziraat, Garanti and Finans Emeklilik led the yearly renewable term assurances, writing nearly 55% of its business in 2012. On the other hand, the term assurance business was led by Ziraat, Halk, Anadolu and Yap? Kredi, which together wrote 60% of the category’s premium in the same year. Garanti led the riders market, holding a 34% share in the business and providing riders such as disability covers, unemployment cover and critical illness covers. This was followed by Yap? Kredi, which held 24% of the rider markets share in 2012.
The low penetration rate, an increasing life expectancy, and sustained GDP growth are the major factors driving demand for life insurance products. Moreover, the government’s amendment to the private pension law is also expected to contribute. However, given the increasing competition and regulation changes aligning with international standards such as Solvency II, the Turkish life insurance segment is expected to consolidate.
Distribution channels
Agencies were the largest distribution channel for non-life insurance, accounting for 68.9% of the gross written premium from new business in 2013.
Bancassurance was the Turkish life insurance segment’s largest distribution channel in 2013, accounting for 81.2% of the gross written premium new business of the segment. This was due to the large network of banks, which support insurers to reach a large customer base at a lower commission cost. Banks have been on a push to expand their branch networks in semi-urban areas across the country, allowing them to reach more customers. Moreover, the cost-effective nature of the channel makes it an attractive distribution network for insurers. The channel’s share in terms of new gross written premium business generation is expected to rise to 87.7% in 2018.
Besides the bancassurance channel, insurance companies are also using technology to expand their sales. In February 2013, Aegon Turkey became the first company to launch an online platform for the sale of products through tablets and mobile phones. This application uses Turkcell’s internet infrastructure. Aegon has transferred all the sales procedures to this online platform to reduce paper formalities and provide easy online accessibility of policies to its customers. According to Aegon’s analysis, this platform will allow Aegon Turkey to cut its operational costs by approximately 20% in 2014.
Key Industry Trends and Drivers
Sustained economic growth
The Turkish economy was both the sixth largest in the EU and the 17th largest globally in 2012, according to Turkey’s investment promotion agency ISPAT. The Turkish economy more than tripled in terms of value in 2012 – from TRY348.8 billion (US$231 billion) in 2002 to TRY1.4 trillion (US$786 billion) – and was the fastest-growing in the European region during 2002-2012.
The real GDP growth average stood at more than 6.0% annually up to 2008, when the global economic downturn and tighter fiscal policies caused GDP to contract in 2009. The economy rebounded in subsequent years, however, and GDP at constant prices grew by 9.2% and 8.8% in 2010 and 2011 respectively, led by the robust performance of exports and the services sector.
According to the IMF, the country’s GDP at constant prices is expected to expand by 2.3% and 3.1% in 2014 and 2015 respectively, which will continue to support the segment’s growth.
Favourable demographics & life expectancy
An increase in life expectancy also supported the growth of the life insurance segment. According to World Bank statistics, the average Turkish life expectancy increased from 72 years in 2004 to 74.9 years in 2012. Turkey had a population of 79.7 million in 2012, with the working age population (aged between 15-64 years) representing 67.4% of the total, while 6.3% were over the age of 65. The majority of the country’s population is in its productive phase, implying there is a large number of potential buyers for life products. As these increasing life expectancies are used to calculate the premium paid by a policyholder, the Turkish life insurance segment is expected to register growth.
Private pension law amendment
The Turkish government made an amendment to the Private Pension Savings and Investments System Law in June 2012, which also introduced other laws and statutory decrees into the Turkish pension sector. These amendments and new laws came into force from the beginning of 2013, with the private pension sector’s regulatory framework aiming to increase long-term domestic saving rates in Turkey.
According to the new regulations, the government will pay 25% of an individual’s pension contribution for all pension contributors; this will be capped at the country’s minimum wage rate that is applicable during the year. Moreover, while exiting the fund, the individual will be taxed only on the net returns, rather than the entire accumulated amount. The employers’ direct claim for rebates, under corporate taxes for their share of pension contribution, also increased from 10% in 2011 to 15% in 2013.
In 2011, Turkish pension fund assets ranked among the lowest in the OECD countries, but these reforms should increase retirement and pension saving. The number of pension policies sold stood at 117,901 in 2011, jumping to 230,056 after the amendments came into force. The gross written premium contribution of the pension category is projected to continue to grow.
Low penetration rate
According to the Insurance Europe Statistics of 2013, the Turkish insurance industry had a low penetration rate of 1.4% in 2012 when compared to the European average of 7.6% in the same year. This low penetration rate signifies an attractive opportunity for growth.
Moreover, international companies such as Allianz, AXA, Aviva, Groupama and Metlife have positioned themselves in the Turkish insurance industry to benefit from these opportunities.
Consolidation expected
According to the Insurance Association of Turkey, there were 27 life insurers in the country, with the leading three accounting for 43.8% of the segment’s gross written premiums in 2013.
Foreign insurers such as Allianz, AXA, Aviva, Groupama and Metlife have played a significant role in the industry’s growth by increasing insurer competition — a trend that is expected to continue.
To increase competitiveness, several mergers, acquisitions and business alliances have taken place. Allianz, for example, acquired an 80% stake in Yap? Kredi Emeklilik, thereby becoming one of the top five life insurers in Turkey. Owing to the increasing competition and Turkey’s alignment with EU regulations (including the implementation of Solvency II norms), the segment is expected to consolidate further.
