Turkey: Maturing market poised for mergers

The insurance market in Turkey is bracing itself for consolidation following a decade of growth that has brought key international players to the country eager to play a part in the sector’s development.

Buoyed by the introduction of the Turkish Insurance Law almost five years ago, the industry has expanded steadily, with premiums rising from $81 per capita in 2005 to $127 in 2010 as the market has matured.

But with the sector becoming increasingly crowded, more mergers look likely, according to the general manager of Aviva Turkey, Meral Erdenk. “The market has seen seven new entrants in the past four years, going from 10 to 17 players,” he told OBG. “However, the market itself has not seen 70% growth, so it is unlikely that all these players will remain. In particular, those without a bancassurance partner will face a great deal of difficulty, as the return on direct channels often takes a decade.”

Figures show that the major players now dominate the industry, with the top 10 companies holding an 85% share of the life segment and a 73% share of the non-life insurance market in 2010.

Premiums for both life and non-life insurance policies rose by 39% between 2006 and 2010, according to the Association of Insurance & Reinsurance Companies of Turkey (Türkiye Sigorta ve Reasürans Şirketleri Birliği, TSRSB). While the sector’s contribution to Turkey’s economy remains below that of developed markets, the country has begun closing the gap on some of its eastern European counterparts.

Data shows that in 2009, insurance premiums in Turkey reached 1.3% of GDP while premiums in the UK accounted for 12.9% of GDP. Premiums reached 3.1% and 3.8% of GDP in Hungary and Poland, respectively, for 2009.

While consolidation remains a topical issue for the industry, other significant developments are also on the horizon, most notably the introduction of the Commercial Code in July, which should play a key role in the market’s development by providing a legislative framework for each economic sector and greater categorisation of insurance classes.

The code will be a major point of interest for industry players who are calling for the sector to be more tightly regulated, along the lines of Turkey’s banking sector, to help ensure future growth is more sustainable.

The country chief executive for Allianz, Alexander Ankel, told Hürriyet Daily News in early March that the fast pace of growth and fierce competition had led to a lack of discipline in the market. “Turkey should launch strong regulations in the insurance sector – like it did for banks following the 2001 financial crisis. This will ensure the healthy growth of the economy,” Ankel told OBG.

While motor vehicle insurance is expected to remain one of the main market drivers, the TSRSB has also identified untapped opportunities in a number of key areas, including general liability, mortgage and unemployment insurance. Reinsurance also remains largely under-explored, with only two of the TSRSB’s 64 member firms currently specialising in this segment.

The move to make insurance obligatory in new fields should also drive growth and generate further interest among industry players. In 2010, Turkey made medical malpractice insurance compulsory, with doctors and dentists now obliged to have professional liability insurance.

Coastal facilities sea pollution liability insurance, which covers refineries, shipyards and industrial and power facilities on the coast, is also compulsory, providing additional opportunities in the market for growth.

Additionally, the sector is awaiting the introduction of a law on Catastrophe Insurance, which is currently in the drafting stage. The legislation is expected to broaden compulsory earthquake insurance and lead to further legal and technical work that will be undertaken by the Turkish Catastrophe Insurance Pool (TCIP) on natural disasters such as earthquakes, floods and storms, alongside acts of terrorism and environmental pollution. The TCIP was created by the government in cooperation with the World Bank following the devastating 1999 Marmara earthquake.

While unexplored areas of business should drive further growth in Turkey’s insurance industry and help maintain the interest of major operators, they are unlikely to reverse the consolidation process and ongoing emergence of dominant players. However, further legislation looks likely to put new and untapped opportunities firmly in the spotlight as the market continues to mature.