Interview: M Uğur Erkan
What effect have multinational insurance firms had on the growth prospects of domestic players?
M UĞUR ERKAN: Turkey’s positive economic growth, favourable demographics and low penetration rates have drawn the attention of local and multinational players to the Turkish insurance sector. International companies, in particular, are increasingly looking to take advantage of these factors. In fact, the foreign share of total paid-in capital in the life and pension business grew to 69% in 2013, up from 52% in 2008; quite a significant uptick in growth. At the same time international firms accounted for some 45% of total premiums in 2013, compared to about 53% in 2008, which is primarily due to the fact that individual life insurance premiums have grown substantially in recent years.
So, yes, there have been more foreign players in the market, but there is still considerable room for growth by local firms. In addition, banks are still the most important distribution channel in Turkey for insurance products, giving domestic companies an advantage when it comes to reaching customers.
That said, I believe that they have a positive impact on the development of the insurance sector overall, not only in terms of customers who gain access to a wider range of products and services, but also in terms of domestic companies that are incentivised to innovate and become more efficient as a result of the increased competition. A healthy level of competition is good for all of the parties involved.
What efforts are being made to extend life insurance coverage to underinsured segments?
ERKAN: The level of life insurance penetration in Turkey is quite low compared to countries with a similar level of development, and Turkey lags far behind developed nations. While there has been some improvement in this regard over the past few years, there is still significant untapped potential, especially given the country’s young population. In my opinion, the situation is primarily due to economic and socio-cultural factors, such as an unfamiliarity with insurance products and reluctance to invest in them.
One thing that we have observed is that loan customers often buy insurance when it is easily understandable and offered with reasonable premium levels. In this line of business it is very important to match customer needs with products offered, so creating positive customer experiences through high service standards, during both the sales and post-sales phases, will help the long-term development of Turkey’s life insurance segment. Thus, it is important that companies, associations and agents work to increase insurance appreciation among the populace. This effort should not only be taken by local players, but by foreign entrants as well. Many firms have been working to increase trust and awareness in collaboration with the Insurance Association of Turkey, which is empowered to develop insurance businesses and services. These activities have had a very positive development on the life market.
How are employers being incentivised to contribute to employees’ private pension accounts?
ERKAN: According to the data provided by Pension Monitoring Centre, as of December 2014, the individual participation rate is higher than the corporate participation rate. Only 27% of contracts are group contracts, and 24% of these group contracts are non-contributory group contracts. Our country has strong potential, in terms of increasing the number of participants and growing fund resources, but the ratio of group contracts in the system has not reached the desired level. Legislation in 2013 extended advantages to employers. The vesting period was increased to seven years and a more flexible structure was introduced for corporate contracts to improve employee loyalty. Tax relief was also revised so employers could claim a tax deduction on pension contributions of up to 15% of employee income with a cap on contributions that equates to the national minimum wage. Thus, I anticipate a significant increase in corporate participation.
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