INSURANCE SECTOR IN 2000

THE TURKISH INSURANCE INDUSTRY

The Turkish Insurance Industry started the year 2000 with negativenesses of the earthquakes of 17^th August, 1999 Kocaeli and 12^th November, 1999 Bolu-Düzce in which almost 18.000 people lost their lives, more than 50.000 people were injured causing an economical loss of over 10 billion US dollar on a national scale. Insurance industry, endeavouring to overcome the moral as well as material losses of these earthquakes by successfully paying losses over 750 million US dollar in a very short time span regarding the fire and engineering policies including an earthquake cover together with business interruption and loss of profit claims, was affected by the crisis which started at the banking sector and spread to the other finance sectors during the last quarter of 2000 resulting with the economy’s already difficult position to worsen more.

The “Year 2000 (Y2K) Problem” of the computer systems which was predicted to create major problems for the companies and institutions everywhere in the world including Turkey, was solved without any losses for the insurance companies and for the covers they provided, as the insurance sector took the necessary measures in time and adequately.

In addition to the negative developments seen in the national economy, the experiences of the insurance sector during the last decade and the developments observed in the international reinsurance markets in recent years showed their impact on 2001 renewals which were transacted at the end of 2000.

Whilst the unconscious freedom of competition which started since 1990 when the market was liberalised, caused a rapid drop in the technical profits of companies, also a decrease in the financial profits which were the balancing elements and a deterioration in the technical results of reinsurers in a gradually increasing way, the sizeable earthquake losses on the one hand and the diagnosis which came on the scene during the year 2000 showing the earthquake risk of Marmara Region more than estimated on the other, have altogether increased the existing negativenesses.

For the insurance industry, 2000 was, as in the precedings, another blank year in terms of legal infrastructures as well as disorderliness caused therefrom, along with the economical conditions getting harder gradually.

The “Draft Law in respect of the Regulation and Supervision of the Insurance Activities” prepared by the Undersecretariat for the Treasury and presented and explained to the insurance sector in May 2000 was not found appropriate by the sector due to the following reasons:

Articles included in the Draft Law not being in conformity with the European Union’s standards in respect of insurance and their dependancy on central authorization rather than liberalisation during such a period of time when the latter is effective,
Reserves not being exempted from taxes during the same year they are held, as in the case of earthquake loss reserves and such an application would bring to the sector a considerable financial burden more than it can chew,
Giving no room for an independent, effective and transparent supervision off,ice intensifying on the financial structure and especially on solvencies of the companies,
Not bringing an absolute solution in respect of definitions of insurance intermediaries and to their relations with the insurance companies,
Proposing to form an “Insurance Guarantee Fund” which is very harmful from the point of the companies operating orderly and which is an element to exhaust the financial sources of such companies,
By neglecting the “Bancassurance” application which is spreading gradually in the world, it hinders the banks to act as intermediaries for the insurance companies.

Therefore, a new study has been started by the Association to prepare a draft law which complies with the European Union as well as international standards, taking into account all the above points.

Decree No. 595 in respect of the Control on Constructions as well as the General Conditions of the Compulsory Third Party Liability Insurance for the Institutions to Control the Constructions have come into force on 10^th April, 2000 and 10^th July, 2000 respectively by being published in the Official Gazettes, in spite of all the warnings and negative views of the insurance industry, the leading reinsurance companies of international markets and the professional institutions of construction sector.

The operation of such an insurance seems quite difficult without forming the necessary legal infrastructure, making the legal arrangements to provide the integration between the controlling institutions and the bodies to approve and issue license, rearranging the powers of the professinal institutions, bringing certain standards for the products of the firms engaged in production for the construction sector, increasing the qualifications of the related workers and constructors and finally, without determining the penalties clearly and in a dissuading way. Also, the most crucial than all is that the selling of such policies seems almost impossible without having a reinsurance protection which can drag the companies into the bankruptcy point.

Although it is stated within the legislation that it is compulsory for all the insurance companies which have licenses in the fire and engineering branches to operate this insurance, the insurance companies could not make this insurance and provide cover due to reasons such as the uncertainties within the Decree itself as well as within the general conditions, the unlimited liabilty and not being able to provide any reinsurers’ support. Finally, the application of the Compulsory Third Party Liability Insurance for the Companies Controlling the Constructions is postponed for six months as of 16^th August, 2000 by the Ministry of Public Work, Development and Housing with the consent of the Undersecretariat as per Article 22 of the same Decree.

On the other hand, the general conditions as well as the tariffs and instructions of the Compulsory Earthquake Insurance prepared within the framework of the Decree No.587 in respect of Compulsory Earthquake Insurance published in the Official Gazette No. 23919 dated 17^th December, 1999, were published in the Official Gazette No. 24164 dated 8^th September, 2000 and the practice of this insurance started as of 27^th September, 2000. In view of the fact that Turkey is on a risky earthquake zone, it is expected that this kind of insurance, which will be of great assistance in the future, will provide crucial advantages as well as contributions for the country. As in every new business, it took some time to put the compulsory earthquake insurance into practice, to provide the systems adjustment and to start its operations without any problem. The problems arisen were tried to be solved one by one, the reinsurance protection was provided, the infrastructures of hard- and soft-wares were completed, all being transacted rapidly in cooperation with the Undersecretariat for the Treasury, the Managers determined for a period of five years of the Turkish Catastrophe Insurance Pool, i.e. Milli Reasürans T.A.S. and the Association and finally, the policy sales were started as of 27^th September, 2000.

The number of insurance companies licensed to operate in fire branch, having obtained the authority to issue policies within the framework of the terms and conditions of agreements they signed with the Pool Managers, i.e. Milli Reasürans T.A.S. was of 34 as at the end of 2000 and 155.836 compulsory earthquake insurance policies were sold between 27^th September, 2000 and 31^st December, 2000.

Another draft law in close relation with the insurance sector was the “Individual Pension Savings and Investment System”, studies of which were carried out intensively during 2000. In the case where this system is legalised as it is presented to the Parliament, it shall be another kind of life insurance included within the third step of life insurances, in spite of all the efforts carried out by the sector as well as the Association in developing the said system to provide a second step pension service as in developed countries, On the other hand, the taxes considered to be implemented on the endowment with profit insurances will consist an impact for the life insurances, against the tax encouragements planned for the products of this new system.

At the Information Center for the Insureds which was formed at the Association as per the Road Traffic Act regarding the Motor Compulsory Third Party Liability Insurance policies, 15.767.272 policies, 3.729.453 endorsements and 1.498.202 claims files were recorded during the period from 1^st January, 1998 upto 31^st January, 2001 which are backed-up regularly and made ready for the use of sector as well as related public authorities.

Also, the number of policies which are in transaction reached to 481 as at 31^st December, 2000 in respect of the Traffic Guarantee Fund services also carried out by the Association.

The bulletin “Birlik’ten” started to be published monthly as of January 2000 by the Association in order to develop the insurance profession as well as to be the voice of the sector. Since then the publication of this bulletin continues and it is distributed without any charge to the members of the Association, the public sector, the universities, institutions related with insurance and to the public professional associations.

NUMBER OF COMPANIES

67 companies were active in 2000 as in the previous year, 63 being insurance and 4 reinsurance companies. When taken into consideration the state of companies such as Assitalia and Magdeburger being foreign companies’ branches and the Inter Sigorta A.S. and the Universal Hayat Sigorta A.S. which did not seem to produce any premium ‘though being a member of the Association, the number of actually active companies come down to 63. The commercial title of Generali Sigorta was changed to be Generali Kent Sigorta A.S. and this was registered on 4^th April, 2000. Also, Halk Yasam Sigorta A.S.’s commercial title was changed to be Yapi Kredi Yasam Sigorta A.S. as of 1^st October , 2000 and Halk Sigorta T.A.S. to Yapi Kredi Sigorta A.S. as of 16^th October, 2000.

The annual average increase ratio of the people working in insurance and reinsurance companies was of 8.75 percent during the period of 1996 – 2000 and the total number rose to 10.393 at the end of 2000. Accordingly, the average number of personnel per company was 160. The number of female personnel in the sector which was showing an increasing trend since long time, reaching to 5.476 at the year-end, rose its portion within the sectorial workers by 52.7 percent, whereas the number of male personnel, decreasing in percentagewise, dropped its portion to 47.3 percent.

The number of authorized agencies working with the insurance companies, increasing by 16.6percent in comparison to the previous year, rose to 10.619 at the end of 2000. Among these agencies 1.514 were working with more than one insurance company; 42.8percent of the same were real persons and 57.2 percent legal entities, 83.9 percent of which were limited companies.

PREMIUM INCOME

The total premium produced by the 63* insurance companies which were active in the industry in 2000 was of 1,790 trillion Turkish Liras, indicating an increase of 81,62 percent in comparison to the previous year’s current prices. In terms of US dollar, the premium income increased to 2,665 million US dollar indicating a real growth of 45,51 percent in comparison to 1999.

Whilst the proportional contributions of Legal Liability, Personal Accident, Life branches in the total production increased in the year 2000 in comparison to 1999, it decreased regarding the Fire, Marine, Accident, Engineering, Agriculture, Health and Credit insurance branches.

On the other hand, when the growth rates of premium income per branch were looked at, it can be observed that the first rank was held by the Legal Liability branch with 197,90 percent and followed by Personal Accident with 117,48 percent and Accident with 89,74 percent.

(*) Assitalia Sigorta did not produce any premium again in 2000. Magdeburger Sigorta, Inter Sigorta A.S. and Universal Hayat Sigorta A.S. did not provide any information regarding their premium productions in 2000.