Motor insurance remains the largest segment of non-life insurance by premium in Turkey, disproportionately so when compared to EU countries with better-developed accident, health and property insurance markets. The third-party liability motor and accident branches represented an estimated $3.2bn for 2006, 57% of total non-life premium generation.
While motor policies provide useful cash flows, the sector is characterised by fierce competition for relatively low volumes, as well as poor risk and claims management.
Third-party liability insurance - designed to cover one against the cost of damage to another person's property, or their injury or death - is mandatory for all drivers, but only 8m of a total 12m registered vehicles have renewed their policies. While the private car segment is almost completely covered, the majority of motorbikes and tractors are not. Moreover, analysts estimate there are as many as 20m unregistered vehicles.
Besides, drivers can choose to add motor and accident policies, yet insurers estimate only 3m out of all registered vehicle owners do so. Analysts estimate that an increase of registered vehicles from 25% to 50% would generate $1.3bn in new premiums while the volumes would prompt more professional risk management.
"There's very heavy competition based on prices," said Duygun Kutucu, a senior analyst at AK Securities. "Customers are really price-sensitive, they can easily jump to another company if they find a better price." Insurers endeavour to persuade more drivers to purchase voluntary insurance by providing bonuses to those who renew on time and buy all motor policies.
Current industry wide practices and regulations make it difficult for companies to charge premiums to different drivers. While companies can grant up to 60% no-claim bonuses, the system is based on the accident record of the car, not the driver.
A government agency, TRAMER, was established in 2003 to administer a database for third-party liability cases. While this has helped reduce fraud and improve risk management in the sector, it is limited to a small segment and leaves the loophole of a driver's record wide open.
"It would be a very painful process to register 30m or more drivers, and then raise premiums for many of them," said Satreddin Bagcý, assistant director of research at ATA Invest.
To avoid losing market share by raising premiums, companies have resorted to strict claims management, which can significantly cut costs considering the soaring price of spare parts.
However, attempts at improving policy quality or reducing the average number of claims have not proved successful according to ATA Invest, which reported a profit decline across the sector from 5.5% in 2004 to -1.7% in 2005, and -9.6% in 2006.
The industry's only consolation seems to be that motor insurance will become a progressively smaller slice of total premiums in future years. Yapi Kredi Insurance saw third-party liability decline by 17.2%, while overall written premiums increased by 5.2% in 2006.
Garanti Insurance, with a small motor portfolio, was considered a promising candidate for acquisition at the beginning of 2007. Dutch firm Eureko bought 80% of the company for $492m at the end of March.