INSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT - (2020-2024) - TSB
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INSURANCE ASSOCIATION OF TURKEY
STRATEGY REPORT
(2020-2024)
CONTENTS
FOREWORD 1 Figure 17 Turkish insurance sector total coverage 36
1 EXECUTIVE SUMMARY 3 Figure 18 Insurance sectors support to economic growth 37
2 STATE AND THE POTENTIAL OF THE SECTOR 9 Figure 19 Role of insurance in fostering investments
2.1. Strong demand fundamentals 11 (European example) 38
2.2. Competitive market environment with successful growth 13 Figure 20 Catastrophe recovery role of insurance sector 39
2.3. Challenges on Technical Profitability 14 Figure 21 Combined ratio and technical results breakdown
2.4. Turkey’s potential for increasing insurance penetration 16 by key branches (2018) 46
2.4.1. Motor Third Party Liability insurance 20 Figure 22 Source of financing of total healthcare expenditure
2.4.2. Property insurance 22 in Turkey 49
2.4.3. Health insurance 25 Figure 23 Coverage of public healthcare systems in select
2.4.4. Motor own damage insurance 28 countries 50
2.4.5. Life insurance and Pensions 30 Figure 24 Comparison of pensions contribution p.a.
3 ROLE OF INSURANCE IN SOCIETY 33 penetration vs. life insurance penetration 51
3.1. Economic role of insurance 36 Figure 25 Breakdown of life premiums and # of policies
3.2. Financial role of insurance 37 by sales approach 52
3.3. Disciplining role of insurance 38 Figure 26 Overview of economics of agency channel 53
3.4. Risk management role of insurance 39 Figure 27 Penetration potential 59
4 BARRIERS AND STRUCTURAL CHALLENGES OF THE Figure 28 Target state vs. today in key branches 60
INSURANCE SECTOR IN TURKEY 41 Figure 29 Expected GWP in each scenario 61
4.1. Barriers related to general context 42 Figure 30 Expected penetration level in each scenario 62
4.2. Barriers related to market infrastructure 44 Figure 31 Vision and objectives of the insurance sector 64
4.3. Barriers related to branches 45 Figure 32 Strategic initiatives 65
4.4. Barriers related to distribution channels 53 Figure 33 Case examples of insurance sector and
4.5. Barriers related to regulations 55 government collaboration in the UK 67
SECTOR VISION, STRATEGIC OBJECTIVES, AND Figure 34 Insurance awareness program best practices
ROAD-MAP 57 in select countries 68
5.1. Growth potential and objectives 58 Figure 35 Case example of Association of British Insurers’
5.2. Vision and strategic objectives 64 self-regulatory role 70
5.3. Strategic initiatives 66 Figure 36 Key consideration in regulator set-up 71
5.4. Strategic road-map 82 Figure 37 Case example: Regulator set-up in Austria 72
Figure 38 Case example: Regulator set-up in the UK 73
LIST OF FIGURES Figure 39 Case example: Regulator set-up in Spain 74
Figure 1 Key population statistics 11 Figure 40 Role of PMI in national health system in select
Figure 2 Gross written insurance premiums and GDP European countries 76
growth rate 12 Figure 41 Micro-insurance offerings targeting micro,
Figure 3 Gross written premiums in Turkey 13 small and medium enterprises 78
Figure 4 Insurance sector profitability in non-life and life Figure 42 Approach to address protection gaps 78
branches 14 Figure 43 Case example: Apprenticeship model in the UK 79
Figure 5 Combined ratio in non-life branch (2014-2018) 15 Figure 44 Insurance databases in select European countries 80
Figure 6 Key economic factors imposing challenge on Figure 45 Role of brokers and agencies in select countries 81
insurance sector 16 Figure 46 Licensing requirements for insurance roles
Figure 7 Average income by income bands (in deciles) 17 in Spain 82
Figure 8 Median income and insurance & pensions annual Figure 47 Strategic initiative prioritization 83
contribution penetration 18 Figure 48 Time-plan of the strategic road-map 84
Figure 9 Factors affecting insurance penetration by branch 19
Figure 10 Modelling of MTPL penetration 20 LIST OF TABLES
Figure 11 Modelling of property insurance penetration 23 Table 1: Sanctions against uninsured vehicles in
Figure 12 Property insurance practices in France 24 MTPL branch 21
Figure 13 Modelling of health insurance penetration 26 Table 4 Key characteristics of micro-insurance 48
Figure 14 Private medical insurance in Slovenia 27
Figure 15 Modelling of motor own damage insurance
penetration 29
Figure 16 Modelling of life insurance and pensions
contribution penetration 31
INSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024) 1
FOREWORD
VARIOUS STRUCTURAL CHALLENGES ARE AVAILABLE FOR THE
DEVELOPMENT OF INSURANCE AND PENSION INDUSTRY AND TO
INCREASE INSURANCE PENETRATION.
TSB PERFORMED A COMMON WORK WITH MEMBER INSURANCE
COMPANIES TO ADDRESS THE STRUCTURAL CHALLENGES FOR
THE GROWTH POTENTIAL AND TO DETERMINE THE 5 YEARS ROAD
MAP OF THE SECTOR.
As a neutral and reliable authority, of 20% in the last five years, current been conducted and international
the vision of the Insurance 2% penetration rate is low compared benchmarking studies have been
Association of Turkey is the reference to peer countries with similar income carried out. Growth potential of the
institution in the field of insurance levels. Over the past five years, sector has been identified and the
and private pension through motor branch have been the driver of barriers that the sector is facing.
conducting research, activities of non-life insurance, credit protection In light of the sector’s identified
publicity and education, organizing branch and, due to incentives, barriers, a new vision, 5 strategic
and coordinating the activities pensions have been the driver of life objectives and a road-map with 14
of all stakeholders in the sector. insurance. Given the current growth initiatives to achieve this vision have
Representing the sector at the potential of the sector and future been specified.
highest level, TSB conducts studies acceleration in GDP growth of Turkey,
We express our gratitude to
in line with the sector’s needs, seeks the role of the sector is expected
stakeholders of the sector for their
solutions for the sectoral issues to become more critical than ever.
valuable contributions to this study.
and contributes to the sustainable Furthermore, age demographics and
We hope that by shaping the sectoral
development of the sector. expected population increase rate
practices and policies, “Sector
are promising in terms of the size of
In that regard, TSB has decided to Strategy Report” will be beneficial
the population that will create further
prepare a roadmap to guide the for our sector, community and other
demand for insurance products in
sector and to shape the sector stakeholders.
short and middle-term.
strategy in Turkey.
However, there are number of
Insurance constitutes one of the
structural barriers in the way of
key pillars of modern societies.
sector development and penetration
At its core, insurance creates
increase. TSB has conducted a
social benefit through pooling
study with insurance companies to
and distribution of individuals’ and
address these barriers and define
companies’ risks. In face of adverse
a five-year road map for the sector.
events, insurers uphold security and
With the outcomes of the Strategy
stability in the society by covering the
Determination Workshop on February
losses incurred by individuals and
7, 2019, the Perception Survey
companies.
report, which was also made by
Turkish insurance sector, which dates the Association, constituted other
back to 1870s, is going through important sources. To draw a clear
critical times. While the premiums in picture of the sector, meetings
the sector have grown with a CAGR with various stakeholders have
2 INSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024)
INSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024) 3 1 EXECUTIVE SUMMARY
4 INSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024)
1. EXECUTIVE SUMMARY
3%
State and potential of the sector years. As past successful growth
made a clear investment case
Turkish insurance sector has
for foreign capital, numerous
achieved strong growth in the
international insurance companies
past few years and the insurance
have commenced their operations
penetration rate of gross premiums
IDEAL PENETRATION and annual pension contributions to
in Turkey. 62 insurance companies
operating in the sector and their
GDP has reached to 2%. Sector can
LEVEL OF TURKEY be characterized under 3 themes:
market shares indicate strong
competition dynamics and a
WITH INCOME LEVEL • Sector has strong demand competitive market.
fundamentals: Demand
• There is potential for higher
fundamentals supported by young
insurance penetration: Analyses
population and expected growth
of cross-country penetration
after economic stabilization are
rates and income levels have
promising for the insurance sector.
shown that Turkish insurance
Young population constitutes a
sector has the potential to reach
significant component of the Turkish
higher penetration rate. While
population, hence there is a sizable
current penetration rate of 2% is
population which is expected to
a significant achievement, there
demand insurance products. In line
is still a long way to provide a
with that, companies and individuals
better protection against risks for
need protection against number of
companies and individuals.
risks which require social transfer
mechanisms for efficient financing.
Currently, insurance sector is filling
that role in the society and intends
to develop and expand that role.
• Competitive market environment
with successful growth over the
past: The sector has achieved
strong growth in both life and
non-life branches in the past
INSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024) 5
Considering income levels in Turkey, Just as it is the case in other Branches: Sustainability of non-
insurance sector has potential to countries, insurance sector is critical life insurance is threatened by the
reach 3% penetration. Yet, globally for Turkey given its roles. As the heavy focus on motor products and
there are countries which have insurance sector develops further, technical losses incurred in MTPL.
reached penetration rates beyond it is expected to fulfill its role better Meanwhile, there are significant
their fair share. Key differentiator and make greater contributions to protection gaps in many branches,
for these countries is positioning of Turkey’s economic development. In implying high vulnerability against
insurance by the public authorities. that regard, it is crucial to address adverse events for many households
Steps to be taken in this area, Turkey the barriers and structural challenges and businesses. In health, broad
reaching a penetration level of over ahead of the sectoral development. coverage by universal health
4% of the insurance sector may insurance compared to international
Barriers and structural challenges
allow positive decomposed between benchmarks, reduces the need
of the insurance sector in Turkey
countries. for private health insurance. Main
Barriers and structural challenges of challenges in life are life insurance
Role of insurance in society
the sector are assessed under five positioning and life insurance gap.
Main function of insurance is to pillars: Also, sector-wide innovation has been
provide protection for individuals and limited.
General context: Under this pillar,
businesses against adverse events
societal challenges or challenges Distribution channels: This pillar
out of their control. When certain
related to macroeconomic conditions analyzes the challenges pertaining
risks realize, insurance supports
have been addressed. National to distribution channels. It is
recovery processes of individuals and
income levels and effects of relevant observed that particularly agencies
businesses by compensating their
developments are discussed under are struggling to meet the new
losses. In addition to that, insurance
challenges related to macroeconomic requirements that have emerged
sector takes on 4 critical roles:
conditions. As national income level in line with market developments.
• Economic role: Insurance determines purchasing power and Given the emerging customer trends,
supports overall economic growth demand for insurance products, emerging technologies, fragmented
though social transfer of risks the penetration rate in Turkey is market structure composed of small
that individuals and entities face low compared to the peer middle agencies, limited collaboration of
and supports new ventures and income countries. Recognition of agencies with insurers in employee
innovation. Insurance supports role of insurance, sector cohesion, development and technological
economic stability and protects consumer trust and awareness, investments, business model of
investments. prevalence of risky business model in agencies is under threat. Digitalization
non-life are the other challenges that in distribution channels has also
• Financial role: Insurance
are analyzed under this pillar. been limited due to the constraints
companies create long-term
such as regulatory requirements.
funding enabled through assets and Market infrastructure: This
As distribution channels hold the
liability maturity. It can also provide pillar examines institutions and
customer data and relationship,
counter-cyclical financing given long- capabilities of the sector. While the
insurance companies were not able
term and predictable liabilities. sector needs an institutionally and
to deepen their relationship with
financially independent regulatory
• Disciplining role of insurance: customers.
body to provide required checks
Increase awareness of risks
and balances, the association
across sectors and individuals and
needs to position itself to promote
promotes self-protection against
sector priorities and act as a strong
risks.
advocate of these priorities. Most
• Risk management role: Provide significant challenges in terms
protection through pooling of of capabilities are constraints
risks and undertakes burden from in technical and managerial
social state in help enterprises and resources, limited development
individuals. of next generation technical
capabilities (pricing, claims handling,
underwriting) and limited use of joint
data and analytics.
6 INSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024)
1. EXECUTIVE SUMMARY
VISION
Regulation: Some of the challenges growth and penetration rate that
stated under this pillar limit sector’s is higher than expected levels in
ability to adapt global developments cross country comparisons. Launch
in the sector. Requirements such of complementary pension system
as physical policies and signatures that is currently in the agenda,
BECOMING A STRONG restrict the digitalization of closer collaboration with public and
processes; complex and expensive regulatory authorities can help the
AND SUSTAINABLE product development processes (due sector reach a size of 300-350 billion
to approval requirements) restrict TL in the next 5 years. In this case,
INSURANCE SECTOR innovation in the sector. While by increasing the penetration rate by
TO PROVIDE A unclarity around sector standards
and inefficient financial controls make
another 1%, with a penetration rate
of 4-4.5%, the performance of the
SIGNIFICANT it more difficult to constrain the sector will be higher than expected.
undesired practices in the sector,
CONTRIBUTION TO regulatory unclarities in customer
Strategic Objective 1 – Improve
customer trust, awareness and
rights and data protection create
TURKEY’S ECONOMIC challenges regarding customer
engagement: Actions regarding
consumer-focused approach and
AND SOCIAL protection. It is required to perform
a critical and detailed review of
protection of consumer are critical for
reaching this objective. These steps
DEVELOPMENT regulations aiming consistency
include clarification of contracts,
and alignment with technological
better monitoring of customer
developments
satisfaction, clarification of code of
Sector vision, strategic objectives, conduct, increasing awareness of
road map distribution channels. This objective
also includes initiatives around
With the critical role of the sector for
increasing insurance awareness
social and economic development,
through the following an engaging
growth potential and structural
communication strategy. Finally,
challenges considered, a new vision,
strengthening self-regulation of the
strategic objectives and a road map
sector to prevent deviations from
to reach the objectives have been
ethical practices and increasing
defined.
sector-wide collaboration through the
The strategic vision of the sector reform of the sector association is
is to “Establish a strong insurance vital for this objective.
sector which takes an important role
Strategic Objective 2 – Revise a
in building Turkey’s future”. To achieve
modern institutional structure:
this vision, 14 initiatives around
Set up of an independent and
5 strategic objectives have been
strong regulator is crucial for
defined.
the development of the sector.
With the implementation of the The regulator will contribute to
identified initiatives, insurance trustworthiness and efficiency of the
penetration of 2% is expected to sector by taking an active role in
reach 3% in the next five years and increasing the clarity and consistency
the sector is expected to reach a of the regulations and introducing
size of 300-350 billion TL with 22% a stricter mechanism to implement
CAGR. With support from public financial controls. Another initiative
authorities, Turkey can unlock further under this objective is adoption of
INSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024) 7
future-looking, stable and consistent Deterrence can be increased help it respond adequately to the
regulations. With the adoption by revising the penalties and evolving needs of all stakeholders
of more agile product approval collaborating in detecting and tracking in a changing world. One of the
processes and establishment of leakages with the authorities. important steps under this objective
“sandbox” framework to support is enhancing the skill set of talent
Strategic Objective 4 – Expand
innovation, the sector’s capacity is pool (in technical and managerial
insurance offerings and engage
expected to be enhanced. Engaging roles). This initiative covers action
with emerging ecosystems: This
communication strategy and reform items such as expansion of sector
objective is primarily concerned with
of TSB mentioned in previous talent pool, creation of talent skilling
proliferation of insurance products,
objective will support the modern programs. With improvement of
increase in penetration rates and
institutional structure. sector data sharing and analytics
minimization of protection gaps,
capabilities and creation of
Strategic Objective 3 – Develop hence primary initiative for this
databases that enable decision-
close and effective partnership objective would be increasing product
making, it is aimed to ameliorate
with the government and and channel variety to promote
technical capability of the sector.
regulator: This objective entails inclusiveness. This initiative suggests
Finally, agencies which constitute
initiatives for working closely with increasing awareness around basic
an important stakeholder should be
the government and the regulator insurance products (e.g. casco
supported in preparing for future
to reduce the burden on the public and home insurance), cultivating
with emphasis on their financial
sector and to develop the insurance products already getting traction
sustainability, positioning, ability to
sector. One of the areas to work (e.g. cyber risks, credit and surety
keep up with digitalized world and
together is devising the role of products), strengthening inclusive
should be assisted in working more
insurance in health system. Role value propositions in insurance (e.g.
efficiently.
sharing between public and private takaful). In increasing the variety of
sectors is critical for the development products, services and channels,
of private medical insurance. Another micro insurance products stand out
working area would be reduction of as they target low-income households
total cost of MTPL and improvement and SMEs. Another important
of branch profitability. Efficient use initiative to note is improvement of
of data, cost reduction through sector data sharing and analytics
preventive measures, more granular capabilities. As part of this initiative,
differentiation in pricing in the short- collaboration with authorities is
run, switch to free market system necessary for addressing regulatory
in the long-run is envisioned under barriers for digital products and
this initiative. Repositioning of life services, and implementation of clear
insurance considering expected and consistent standards.
pension system second Pillar is
Strategic Objective 5 – Enhance
another important initiative for this
sector participants’ capabilities
objective. This initiative requires
and sophistication: Previous
determining the tax benefit in life
strategic objectives aim to address
products and products that are
the relationship of the sector with
suitable to the institutional agenda
the customer, public and regulatory
and designing the support of
authorities and to increase efficiency
public authorities. Finally, through
of the sector. Final strategic objective
increased deterrence and stickiness,
is structured around building
improvement of compliance in
the sector’s own capabilities to
compulsory lines is recommended.
8 INSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024)
INSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024) 9 2 STATE AND THE POTENTIAL OF THE SECTOR
10 INSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024)
2. STATE AND THE POTENTIAL OF THE SECTOR
20%
In last five years, the Turkish • 3. Technical profitability is
insurance sector has grown with a challenged by structural hurdles
CAGR of 20%. Insurance penetration and the sector is open to the
which covers non-life, life and annual macroeconomic effects: Structural
pension contributions has reached hurdles affect the sector adversely,
CAGR OF INSURANCE to 2%. Yet the market is heavily limiting technical profitability in the
SECTOR IN THE LAST focused on motor products. Sector
is struggling to achieve a technical
non-life branch. Non-life profitability
has shrunk over the past years,
FIVE YEARS profit, hence relies on investment delivering similar returns to risk-
income to make a net profit. free rate in 2018. Profitability levels
are above international markets in
Market can be characterized under 4
life and pensions branch.
main themes:
• 4. There is a potential for higher
• 1. Strong demand fundamentals:
penetration level: Insurance
Insurance market in Turkey is
penetration is highly dependent
underpenetrated and possess
on income levels (i.e. ability to
upside opportunity given its
afford insurance) of a country, yet
demographics and economic
at branch level there are various
growth potential.
other drivers for penetration and
• 2. Competitive market unique practices emerge to achieve
environment with successful penetration above fair share. In
growth: Insurance sector is a that regard, there is an opportunity
prominent sector in Turkey with to increase the penetration level in
broad set of stakeholders. The Turkey.
sector has grown with a CAGR of
20% in the last five years, making a
clear investment thesis. Competitive
market context is established
across business branches.INSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024) 11
70%
2.1. Strong demand fundamentals 64 years old, pinpointing a large
insurable population, and ~25% of the
Insurance market in Turkey is
population is younger than 15 years
underpenetrated and possess upside
old indicating strong demand in the
opportunity given its demographics
mid-term. Furthermore, population
and economic growth potential.
growth rate is substantially higher TARGET POPULATION
Turkey has considerably younger than that of many countries in
Europe.
BETWEEN AGE OF 15-
population compared to European
markets, yet the potential has not 64
yet been fully translated in overall
insurance sector penetration. ~70%
of the population is between 15-
Figure 1 Key population statistics1
Population size and growth Population by age group
CEE countries, 2017, MM Turkey vs. EU 27, 2017
Population size 2018 (MM)
80.8
46.3
325.9
11.4
66.0
60.6
64.8
10.6
5.7
17.1
10.8
144.0
38.0
82.7
19.6
9.8
42.2
7.1
65+
1.5%
55-64
1.0%
Population growth CAGR (%)
45-54
0.5%
Age group
35-44
0.0%
25-34
-0.5%
15-24
-1.0%12 INSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024)
2. STATE AND THE POTENTIAL OF THE SECTOR
Size of insurance market is closely correlated with overall economic development. Over the past decade, gross written
premium evolution resembled GDP growth pattern. Looking forward, GDP growth is promising and is expected to
outperform many developed European markets.
Figure 2 Gross written insurance premiums and GDP growth rate 2
Historical GDP and insurance GWP growth GDP growth rates1 average in selected countries
2006–2018, (year-on-year change in %) %
32% 1.00 6.5
6.1
30% 0.95
Enforcement of rigid 6.0
0.90
28% MTPL tariffs temporarily
decoupled GDP and 0.85 5.5
26% GWP growth in 2016 0.80
5.0
24% 0.75
22% 0.70 4.5
0.65
20% 4.0
0.60
18% 0.55 3.5 3.3
16% 0.50 3.2
0.45 3.0
14% 2.7
0.40
12% 2.5
0.35 2.2
10% 0.30 2.0 1.9 1.9
1.8 1.8
8% 0.25 1.6
1.5
0.20 1.2 1.3
6%
Historically there has been a 0.15 1.0
4%
strong relationship between GDP 0.10 0.5
2% and GWP, both in nominal and in 0.5 0.4
0.05
real terms
0% 0.00 0.0
Turkey
Italy
France
Germany
Spain
United Kingdom
Poland
2006 2008 2010 2012 2014 2016 2018
Nominal GDP growth Nominal insurance GWP growth 2013-2017 2017-2023
2
Constant prices (2010); Source: Worldbank, Turkish Insurance AssociationINSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024) 13
55
2.2. Competitive market is established across business
environment with successful branches.
growth Insurance sector has reached ~55 BILLION TL
Insurance sector is a prominent BN TL in gross written premiums,
sector in Turkey with broad set of growing with 20% CAGR over the
past 5 years. Non-life branches
GROSS WRITTEN
stakeholders. The sector has grown
with a CAGR of 20% in the last five account for the majority of the market PREMIUMS OF THE
years, making a clear investment and share of life has been stable.
INSURANCE SECTOR
thesis. Competitive market context
Figure 3 Gross written premiums in Turkey3
Non-life and Life GWP Segment growth
2014–2018, BN TL (CAGR ’14-18’)
55 54.7
13% 21%
50 (6.9)
46.6
20% 11%
45
15% (6.2) 21%
(6.8)
40.5
40
12%
11%
(5.0)
(5.0)
35
10%
31.0 (4.2)
30 12%
(3.8)
26.0 11%
25 13% (3.4)
(3.3)
11%
(2.9)
20 20%
15
10
76% 77% 77% 75% 76%
(19.8) (23.8) (31.2) (34.7) (41.5)
5
0
2014 2015 2016 2017 2018
Life Health P&C
3
Source: TSB
Insurance ecosystem in Turkey chambers. Insurance market is Market has attracted significant
consists of a number of key fragment with 62 players, and total foreign investment, and majority of
stakeholder groups – Associations premiums or fund size of top 5 player the top players are subsidiaries of
& Committees, Regulator & in non-life, life and pensions market global insurance incumbents. Share
Supervisor, Consumers, Ministries, account for 44%, 53% and 72% of the foreign capital in the sector
Insurance companies, Distributors respectively, indicating competitive remains high over the past 5 years at
and various supporting entities such market environment. around 70%.
as loss adjusters, pools and sector14 INSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024)
2. STATE AND THE POTENTIAL OF THE SECTOR
2.3. Challenges on Technical profitability in the non-life branches. international markets in life and
Profitability Non-life profitability has shrunk pensions branch. Depreciation of
over the past years, delivering currency and inflation are negatively
Structural hurdles affect the similar returns to risk-free rate in affecting profitability.
sector adversely, limiting technical 2018. Profitability levels are above
Figure 4 Insurance sector profitability in non-life and life branches4
ROE for Life insurance companies in Turkey Benchmark vs. European peers – Life
2014–2018, TRTK2YT 2016
40% 37.6% 40% 38%
31.3% 31%
30% 30%
27%
25.0%
23.1% 20%
20% 18.0% 20% 18%
16.3%
16.5% 18.1%
14.0% 14.7% 14.6% 12% 12%
10% 10% 9% 9%
11.5% 8% 7% 7%
9.0% 9.7% 9.6% 5%
2%
0% 0%
2014 2015 2016 2017 2018
Germany
Denmark
Finland
Italy
Norway
Poland
Slovenia
Switzerland
Brazil
Hungary
United States
Czech Republic
Turkey, 2017
Turkey, 2018
ROE Risk Free Rate of TR Risk Free Rate+Equity premium
ROE for Non‑Life insurance companies in Turkey Benchmark vs. European peers – Non‑Life
2014-2018, TRTK2YT 2016
25% 23.1% 25%
20% 16.5% 18.1%
20% 20% 20%
14.0% 14.7% 14.6% 19% 20%
15% 18%
15.1% 16%
9.7% 9.7% 13.6% 15% 15%
10%
13%
5% 10%
8% 9% 9%
9.0% 9.6% 11.5% 20.1%
0%
-7.4% 5%
5% 4%
-5% 3%
-10% 0%
2014 2015 2016 2017 2018
Germany
Denmark
Finland
Italy
Norway
Poland
Slovenia
Switzerland
Brazil
Hungary
United States
Czech Republic
Turkey, 2017
Turkey, 2018
ROE Risk Free Rate of TR Risk Free rate + Equity Premium
4
Source: TSB, OECD global insurance trends report, Thompson Reuters Datastream ;
Note: Yearly average of 2 year Turkish government bond yield (TRTK2YT) is used as risk-free rate. A constant 5% equity is assumed.INSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024) 15
Furthermore, sector was compensating negative technical results with returns from investments, which are mainly
investment in low risk local investment vehicles. These vehicles performance is mainly dependent on the interest rates
in Turkey. Negative technical results mainly stem from dysfunctional economics of motor third party liability insurance
products.
Figure 5 Combined ratio in non-life branch (2014-2018)5
Net combined ratios for Non-Life insurance companies
2014-2018
115% 111%
103% 9% 104% 106% 7%
Other expense 8% 8% 8% Historically, non-life
22% 21%
Distribution commission 22% 21% 21% insurance companies
have been making
underwriting losses
Loss ratio on their books
as evidenced by high
combined ratios
73% 84% 75% 77% 82%
2014 2015 2016 2017 2018 The underwriting
losses have been
compensated
Net technical result by substantial
excl. allocated investment -213 -2,150 -370 -901 -2,367 incomes on
income (MM TL) investment,
which have led to
…And including relatively high RoE
investment income 1,084 -418 1,830 2,268 3,273 in the industry
(MM TL)
5
Source: TSB, SDK, OECD global insurance trends report, AXCO analysis16 INSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024)
2. STATE AND THE POTENTIAL OF THE SECTOR
Recent macro-economic and the fall in inflation, is seen as a • Interest rates: Life insurance is
developments are expected to positive development. highly dependent on credit-linked
challenge sector in near and mid-term life products. In 2017, credit-linked
• Inflation: Affordability is very
future in three folds: products account for ca. 75% of
important factor in insurance,
premiums and 55% of policies.
• Currency depreciation: Motor high inflation results in loss of
Interest rates have increased from
lines account for ca. 50% of purchasing power, hence limits
low 10%s to above 20% in the last
insurance, devaluation affects disposable income for buying
few years. High interest rates curb
insurers in two-folds, first motor insurance. Furthermore, margins
lending volumes which affects credit
demand decreases as vehicles in real terms are severely affected
linked business, such as term-life
prices spike in local currency as insurance prices do not adjust
dependent life insurance business,
terms, second MTPL premiums are real-time given the policy durations.
casco and property insurance.
linked to Turkish Liras, yet cost of On the other hand, in the second
On the other hand, in the second
spare parts increase with foreign half of the year, the stabilization in
half of the year, the stabilization
exchange, resulting in increased the economy, with the stabilization
in the economy, with the fall in
claims costs. On the other hand, of exchange rates and the fall
interest rate, is seen as a positive
in the second half of the year, the in inflation, is seen as a positive
development.
stabilization in the economy, with development.
the stabilization of exchange rates
Figure 6 Key economic factors imposing challenge on insurance sector6
Significant currency devaluation Significant inflation Significant increase in interest rates
FX rates Consumer price index TRLIBOR1M
7.5 24% 30%
7.0 22%
6.5
20%
6.0
18%
5.5
20%
5.0 16%
4.5 14%
4.0 12%
3.5 10%
10%
3.0
8%
2.5
6%
2.0
1.5 4%
1.0 2% 0%
07 08 09 10 11 12 13 14 15 16 17 18 07 08 09 10 11 12 13 14 15 16 17 18 07 08 09 10 11 12 13 14 15 16 17 18
USD/TL EUR/TL
6
Source: Turkstat, Oxford Economics, S&P market intelligence
2.4. Turkey’s potential for Key factors affecting the insurance to increase the role of private
increasing insurance penetration penetration can be examined under 3 sector (ex: incentives, compulsory
main categories: insurance etc.).
Insurance penetration is highly
dependent on income levels (i.e. • Macroeconomic factors: Income • Cultural and geographical factors:
ability to afford insurance) of a level, workforce participation, Frequency of the risk realization (ex:
country, yet at branch level there are insurance affordability, economic high risk of hail storm, hurricanes
various other drivers for penetration growth, population growth, share of etc.), risk awareness and social
and unique practices emerge to urban population. solidarity.
achieve penetration above fair share. • Role of the government:
In that regard, there is an opportunity Government’s role in coping with
to increase the penetration level in risks (ex: role of government in
Turkey. disaster financing), mechanismsINSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024) 17
From insureds perspective, insurance ownership has a direct link with an individual’s income level. Buying behavior can
be characterized in four stages:
Figure 7 Average income by income bands (in deciles)7
Mean annual income by income decile in Turkey
2017, K USD
Significantly below Unable to save Compulsory Short‑term Long‑term
poverty risks risks
20 19.2
15
10
8.8
6.8
5.6
5 4.7
4.0
3.4
2.9
2.3
1.4
0
1st Decile 2nd Decile 3rd Decile 4th Decile 5th Decile 6th Decile 7th Decile 8th Decile 9th Decile 10th Decile
7
Source: TurkStat, Türk-iş
STAGE 1: Unaffordable STAGE 3: Short-term risks the income (i.e. affordability) is, the
higher number of potential insured
Individuals who do not have enough As assets of an individual reaches
people are.
income and do not own assets/ a certain level, ownership of health
properties to protect therefore insurance, property insurance, short- In Turkey, equivalized famine line
don’t buy (and cannot afford) term life insurance and personal (6.4 K TL/1.8 K USD), minimum
core insurance protection (some accident insurance increases. This is wage (17 K TL/4.6 K USD) and
penetration in unemployment the first step of voluntary insurance, equivalized poverty line (21 K
insurance, credit-linked life, micro as the individual has properties or TL/5.8 K USD) create inherent
insurance can be considered here, risks to insure and owns compulsory barriers in increasing penetration by
but it does not affect the overall protections. limiting the addressable population
profile of the group). with conventional insurance
STAGE 4: Long-term risks
coverages.
STAGE 2: Compulsory insurance
Voluntary protection against long
Individuals who have enough income term risks such as retirement and
to make down payment on a car death happen typically after covering
loan or a mortgage typically become for short term risks and requires
eligible for compulsory insurance higher income levels.
(MTPL, fire, earthquake, credit-linked
This behavior is closely linked with
life, etc.).
income levels. Overall, the higher18 INSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024)
2. STATE AND THE POTENTIAL OF THE SECTOR
Figure 8 Median income and insurance & pensions annual contribution penetration8
Median equivalized income1 vs. Non‑life + Life + Pension contribution penetration to GDP
2017
16.0%
14.0% Australia
Netherlands
12.0% United Kingdom
Insurance penetration
Finland
Denmark
10.0% Canada
United States
ItalyJ
France
Chile y
8.0% Japan
New Zealand
Ireland Sweden
Portugal Belgium
6.0%
Germany sve
v
Brazil
Slovenia
Alm Austria Bl çik
Morocco B Russia
4.0%
Czech Republic
Poland
Colombia Slovak Republic
Mexico Hungary
Vietnam
2.0% Greece
Serbia
Turkey
Tunisia
Egypt
Sb it nY
0.0% Nigeria
- 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000
Median Income, USD
1
“Median income/GDP” of other countries are assumed to be the same for Colombia, Tunisia, Egypt, Nigeria and Morocco
8
Source: TurkStat, OECD, Gallup, Swiss Re, Türk‑iş, Expert opinion
Based on the income levels, Turkey’s In addition to income levels, various regression analysis. Accordingly,
penetration level – with 2% insurance factors drive insurance penetration outperforming countries were
and annual pensions contribution at branch level. To unveil these investigated to identify practices
penetration is slightly below its fair factors various factors were tested supporting penetration.
share. using single-factor and multi-factorINSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024) 19
Figure 9 Factors affecting insurance penetration by branch9
Factors driving insurance penetration at different stages1
2017
Unaffordable Compulsory Short‑term risks Long – term risks
% of population unable to save MTPL Casco Life and Pensions
# of vehicles GDP/Capita GPD/Capita
# of vehicles/capita Average vehicle age Financial literacy
Damage cost/GDP Damage frequency Average individual wealth
Leakage Vehicle and part prices Participation in workforce
Property2 Health Share of urban population
GDP/Capita GDP/Capita
# of dwellings/offices Total health spend
Directly proportional
Crime rate Government share
Inversely proportional
Participation in workforce
9
Source: TurkStat, WHO, UN, OECD, Eurostat, EC, Insurance Europe, AXCO, World Bank, BMI, Gallup, Swiss Re, CIA Factbook, National Transportation Auth.20 INSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024)
2. STATE AND THE POTENTIAL OF THE SECTOR
2.4.1. Motor Third Party Liability vehicles, damage costs and leakage. 10% (~1 mm vehicles) but mostly
insurance Penetration gap for Turkey in MTPL in motorbikes and tractors at 70%
Motor Third Party Liability (MTPL) branch is mainly driven by leakage (~2 mm vehicles)) and 50% (~1 mm
penetration is dependent on which is at around 20%. Leakage vehicles) respectively.
vehicle ownership, total number of is partially at automobiles with
Figure 10 Modelling of MTPL penetration10
There is upside potential to increase MTPL penetration in Turkey by minimizing leakage to EU levels
MTPL – Prediction vs. actual penetration levels Difference between actual vs. predicted penetration levels
1.0% 0.0015
0.8% Italy
0.0010
Actual penetration
Poland Bulgaria
0.6% Slovenia 0.0005
Croatia Spain
Austria. Belgium
United Kingdom Germany
Czech Republic Turkey
Greece
0.4% Finland Portugal 0.0000
Hungary
Denmark France
Netherlands
Norway
0.2% Latvia -0.0005
Sweden
0.0% -0.0010
0.0% 0.2% 0.4% 0.6% 0.8% 1.0%
Predicted Penetration
-0.0015
Croatia
Denmark
United Kingdom
Czech Republic
Poland
Belgium
Italy
Hungary
Spain
Germany
Greece
Norway
Slovenia
Austria
Sweden
Finland
Latvia
Bulgaria
Netherlands
Portugal
France
Turkey
# of vehicles # of vehicles/capita
Damage cost/GDP Leakage1
10
Source: AXCO, Eurostat, Insurance Europe, World Bank, OECD, TurkStat, European Automotive Manufacturers’ Association
Countries with low level of MTPL leakage established deterrence mechanisms with strong sanctions.INSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024) 21
Table 1: Sanctions against uninsured vehicles in MTPL branch11
Country Enforcement practice Monetary Penalty
Turkey • Monthly penalty is imposed to owners of uninsured cars 0.16% of premium
• Owners of uninsured cars lose their right to no claims discount (monthly accrued in case
insurance is not renewed)
Croatia • Awareness program “Stop Uninsured Driving” initiated -
• Intensified police effort
Czech Republic • Daily penalty imposed to owners of uninsured cars USD 2 (daily)
• Penalties fund compensation of victims of uninsured drivers and
guarantee MTPL obligations
Denmark • Daily penalty imposed to owners of uninsured cars USD 37 (daily)
• Further incompliance leads to removal of vehicle from the register
and removal of license plate
United Kingdom • Owners of uninsured cars risk one time monetary penalty GBP 1000 (one time)
• Uninsured cars taken away from owners
11
Source: AXCO, Insurance Europe, public commentaries22 INSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024)
2. STATE AND THE POTENTIAL OF THE SECTOR
2.4.2. Property insurance participation in workforce explain some countries stand out with high
property insurance penetration. insurance penetration in the branch.
GDP per capita, number of dwellings
Yet, in addition to these factors
and offices, burglary rate andINSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024) 23
Figure 11 Modelling of property insurance penetration12
Turkey is at expected level given underlying drivers of penetration
Property insurance – Prediction vs. actual penetration levels Difference between actual vs. predicted penetration levels
0.5
1.4%
Denmark
0.4
1.2%
0.3
1.0%
Actual penetration
0.2
0.8% France Austria
Sweden
0.1
Spain
Slovenia Belgium
0.6% Norway
Cyprus United Kingdom
0.0
Czech Republic Germany Netherlands
Finland
Hungary
0.4% Portugal
Croatia -0.1
Bulgaria Italy
Poland
Turkey Malta Greece
0.2% -0.2
Latvia
0.0% -0.3
0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4%
-0.4
Denmark
France
Cyprus
Spain
Slovenia
Hungary
Austria
United Kingdom
Bulgaria
Turkey
Belgium
Croatia
Czech Republic
Portugal
Norway
Sweden
Poland
Italy
Finland
Latvia
Germany
Greece
Malta
Netherlands
Predicted Penetration
GDP/Capita # of dwellings/offices
Crime rate1 Participation in workforce
12
Source: AXCO, Eurostat, European Commission Energy Department Buildings Database, UN, Worldbank, TESK, Minister of Technology and Sector press release
Government’s approach to disaster and calamities compensation act. expects landowners to secure their
recovery financing is an important Therefore, property insurance assets against storms and hails.
determinant of property insurance penetration is lower than that is Furthermore, property insurance is
penetration. In Netherlands, although expected in the country. Whereas compulsory for mortgaged properties
country is prone to flood risk, flood in Denmark, hail and storm related which also supports penetration.
risk considered uninsurable and climate risk is high yet government
hedged through disaster funds has very low intervention and24 INSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024)
2. STATE AND THE POTENTIAL OF THE SECTOR
Figure 12 Property insurance practices in France13
PROPERTY INSURANCE PRACTICES IN FRANCE
Property insurance in France
GDP penetration in X3.6 GDP/Capita PPP x1.6
0.8% 42,850
respective branch Turkey (USD) Turkey
Additional factors Level Description
Extent of Mortgage lenders require property owners to insure the
enforcement buildings. For rental property, tenant is obliged to obtain
a property insurance.
Voluntary Conditional Compulsory
Cancellation Cancellation within the first year is not possible.
policies Cancellation of insurance contract only possible with
the proof of another replacing contract. There are also
Flexible Strict auto‑renewal clauses in contracts, increasing stickiness.
Contract periods Duration of contracts for large corporate accounts is
2–3 years
Annual Long‑term
Insurance There is a better understanding of risks and higher level
awareness of insurance awareness in France.
Low High
13
Source: AXCO, press releases
France is also one of the countries France, tenants are obliged to obtain policy requires a proof of replacement
where property insurance penetration property insurance and auto-renewal contract from another company or
higher than expected levels. In is common practice. Cancellation of a end of rental agreement.INSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024) 25
2.4.3. Health insurance government‘s share in healthcare insurance penetration. Considering
financing. High national spend on Turkey’s situation among those
Health insurance penetration healthcare, high GDP/Capita and metrics slightly below the expected
is dependent on total spend on low share of public financing drives penetration level.
healthcare, GDP/capita and26 INSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024)
2. STATE AND THE POTENTIAL OF THE SECTOR
Figure 13 Modelling of health insurance penetration14
Turkey is at expected level given the factors driving health insurance penetration
Health – Prediction vs. actual penetration levels Difference between actual vs. predicted penetration levels
5.00% 1.2%
United States
4.50% 1.0%
4.00% 0.8%
Realized penetration
3.50%
0.6%
3.00%
0.4%
2.50%
0.2%
2.00% Switzerland
Slovenia France 0.0%
1.50%
Germany
Australia -0.2%
1.00%
Austria
Portugal Brazil
0.50% -0.4%
Poland United Kingdom
Turkey Norway
0.00% -0.6%
0.00% 1.00% 2.00% 3.00% 4.00% 5.00%
-0.8%
Predicted penetration
Slovenia
Australia
France
Canada
Germany
Denmark
Poland
United States
Mexico
New Zealand
Austria
Russia
Portugal
Colombia
Turkey
Czech Republic
Slovak Republic
Italy
Belgium
Argentina
Chile
United Kingdom
Switzerland
Hungary
Norway
Brazil
Greece
Sweden
GDP/Capita Total health spend
Government share
14
Source: OECD, Eurostat, Worldbank, WHO, AXCO
countries where above the expected government pays for certain portion longer with minimum contract period
level penetration is achieved, for of the cost. Rest is either financed of 18 months. To incentivize early
instance, in Slovenia or Australia a out of pocket, or most commonly adoption, delays in obtaining voluntary
number of practices are observed. paid by a supplementary insurance. supplementary insurance is penalized
Cancellation policies are flexible with an additional levy on premiums.
In Slovenia, a co-payment model
to consider consumer protection
is used, in which depending on
angle. Typically contract periods are
the criticality of the treatmentINSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024) 27
Figure 14 Private medical insurance in Slovenia15
PRIVATE MEDICAL INSURANCE IN SLOVENIA
In Slovenia, a co-payment model out of pocket, or most commonly paid longer with minimum contract period
is used, in which depending on by a supplementary insurance. of 18 months. To incentivize early
the criticality of the treatment Cancellation policies are flexible adoption, delays in obtaining voluntary
government pays for certain portion to consider consumer protection supplementary insurance is penalized
of the cost. Rest is either financed angle. Typically contract periods are with an additional levy on premiums.
Private medical insurance in Slovenia
GDP penetration in x7.1 GDP/Capita PPP x1.3
1.5% 34,900
respective branch Turkey (USD) Turkey
Factors Level Description
Coverage of public Typically uses a co‑payment model. Depending on
facilities criticality of the operation co‑payment contribution varies
Low High
Extent of Insurance has a mandatory part which is run by Health
enforcement Insurance Institute of Slovenia. Yet, majority of population
supplements/complements to the mandatory portion to
increase co‑payment coverage
Voluntary Conditional Compulsory
Cancellation Easy to cancel as auto‑renewal does not exist. Also
policies requires 30 days notice for cancellation
Flexible Strict
Contract periods Minimum contract period is 18 months for health policies
Annual Long‑term
Other factors Delays in obtaining a voluntary supplementary insurance
(after becoming eligible for mandatory insurance) results
in 3% premium loading
15
Source: AXCO
In Australia, a different model penalties such as surcharge for health insurance packages with
is place. Government strongly purchase at old age or uninsured high easy to understand restrictions
incentivized private medical insurance income earners. and coverage. Although the model
(PMI) and public system requires - “Government recognizes the fact supported insurance penetration
additional coverage such as access to that private healthcare users take and presents a good example for
private hospitals, dental, spectacles, pressure off the public system, collaboration between insurers and
home nursing etc. which are especially with respect to public government, it hinders a healthy
addressed by PMI. Almost half of hospitals.” competitive market environment as
the population own private medical the model is community rated rather
insurance. Government incentives – Health insurance association of than individual risk rated and risk-
include rebates on health insurance Australia - equalization mechanisms are in place
premiums depending on age and Lately, in collaboration with insurers to reallocate risks among companies.
income, young buyer discount and government created standard28 INSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024)
2. STATE AND THE POTENTIAL OF THE SECTOR
2.4.4. Motor own damage Turkey has further upside potential bundle offerings with MTPL either
insurance in terms of penetration. Although as a complementary partial or
in MOD branch, other than these comprehensive own damage cover
Motor own damage (MOD) metrics success is heavily dependent (often adding extended liability
penetration is dependent on GDP per on company performance and cultural coverage as well)
Capita, average vehicle age, damage aspects, in many country companies
frequency and vehicle and part prices.INSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024) 29
Figure 15 Modelling of motor own damage insurance penetration16
There is further upside potential to increase Casco penetration in Turkey
Casco – Prediction vs. actual penetration levels Difference between actual vs. predicted penetration levels
0.3%
0.70%
Denmark
0.60% Slovenia France
0.2%
Switzerland
0.50%
Actual penetration
Sweden
Spain
0.40% Finland 0.1%
Slovak Republic Norway
Czech Republic Malta
Poland Latvia
0.30%
Netherlands
Croatia Germany
Turkey 0.0%
0.20% Portugal
Hungary
Italy
0.10% Greece
-0.1%
0.00%
0.10% 0.20% 0.30% 0.40% 0.50% 0.60% 0.70%
-0.2%
Predicted penetration
Slovenia
Denmark
Finland
Poland
Czech Republic
Spain
Croatia
Sweden
France
Slovak Republic
Hungary
Switzerland
Malta
Germany
Netherlands
Turkey
Portugal
Norway
Greece
Latvia
Italy
GDP/Capita Damage frequency
Average vehicle age Vehicle and part prices
16
For Switzerland, Spain and Netherlands damage frequency is assumed to be average of Western European peers; for Latvia, Eastern European peers
Source: AXCO, Eurostat, Insurance Europe, World Bank, OECD, TurkStat, European Automotive Manufacturers’ Association30 INSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024)
2. STATE AND THE POTENTIAL OF THE SECTOR
2.4.5. Life insurance and Pensions penetration is mainly dependent on of urban population. Turkey has room
GDP per capita, financial literacy, for increasing penetration in this
Life and pension penetration -
average individual wealth levels, branch.
measured as life insurance premiums
participation in workforce and share
and annual pensions contribution -INSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024) 31
Figure 16 Modelling of life insurance and pensions contribution penetration17
Life + pension penetration Difference between actual vs. predicted penetration levels
4%
10.0%
9.0%
United Kingdom
3%
8.0%
Denmark
Chile
7.0% Iceland
Actual penetration
Italy France 2%
6.0% Netherlands
Sweden
5.0%
1%
Canada
4.0% Portugal
Norway Belgium
Estonia Spain
3.0% Finland 0%
Czech Republic Germany
Austria
2.0% Slovenia Mexico
Poland Hungary
1.0% -1%
Turkey Greece
Latvia
0.0%
-2%
0% 1% 2% 3% 4% 5% 6% 7%
Predicted Penetration
-3%
Chile
Italy
United Kingdom
Denmark
Netherlands
Estonia
France
Poland
Czech Republic
Slovenia
Iceland
Hungary
Portugal
Sweden
Turkey
Germany
Norway
Finland
Austria
Mexico
Latvia
Canada
Spain
Belgium
Greece
GPD/Capita Financial literacy
Average individual wealth Participation in workforce
Urban Population
17
Source: OECD, Worldbank, Global Financial Literacy Excellence Center, Credit Suisse
In addition to aforementioned metrics, Furthermore, protection and annuities are limited. Term life and
role of government is critical in life savings lines are tax incentivized and endowments are main lines in the
and pensions branch. For example, unemployment and funeral insurances life insurance branch. Although
in Chile which achieved significantly are compulsory. life insurance for mortgages is not
above its fair share, a mandatory mandatory, it has notable size (over
In the UK, auto-enrolment system
funded pensions scheme is in place, one third of the term life business)
is in place which boosts penetration
minimum level of contribution is set and a common practice, which grew
through occupational pensions and
to 10% of income. At the time of with growing mortgage business over
tax benefits exist. Cancellation is
retirement pensioner can opt for the last few years. Multi-benefit plans
harder with deterrence mechanism
pension payment, an annuity or a are common combining life, critical
established to prevent early exist.
combination of both. Many individuals illness, unemployment covering
who is not willing to carry longevity Majority of annuity business is individual and family members.
risk transfer pension to life insurance conversion of pensions pot into
companies for annuity payments. annuities and purchased life32 INSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024)
INSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024) 33 3 ROLE OF INSURANCE IN SOCIETY
34 INSURANCE ASSOCIATION OF TURKEY STRATEGY REPORT (2020-2024)
3. ROLE OF INSURANCE IN SOCIETY18
Main benefit of the insurance is risks of insureds, insurance is often • Disciplining role of insurance:
generally perceived as it provides a precondition for the development Increase awareness of risks
protection against risks that of other productive activities, such across sectors and individuals and
individuals and entities have limited as buying a home and starting or promotes self-protection against
control. Had the risk been realized, expanding a business. risks.
insurance would support them in
Role of insurance can be summarized • Risk management role: Provide
recovery. Although hedging and
in four holistic groups: protection through pooling of
mitigating such risks is a key function
risks and undertakes burden from
of insurance, it is just one of its • Economic role: Insurance
social state in help enterprises and
roles in the broader context. In case supports overall economic growth
individuals.
of small businesses it may mean though social transfer of risks
spending all lifetime savings for that individuals and entities face
recovery of a disaster or in case of and supports new ventures and
life insurance it may mean providing innovation.
enough income for one’s family in
• Financial role: Insurance
case of death.
companies create long-term
Insurance, however, has much funding enabled through assets and
more comprehensive impact than liability maturity. It can also provide
provision of protection, though its counter-cyclical financing given long-
value to government, financial sector, term and predictable liabilities.
businesses and public derive from
this primary function. Because it
manages, diversifies and absorbs theYou can also read
