Are Turkish insurers swimming in shark infested waters?
When one looks at the favorable indicators of economic growth, young generation demographics and low insurance penetration in Turkey, it is easy to understand why it has long been an attractive market for insurers. Motor represents around 50% of the Turkish Non-life market since Motor Third Party Liability (MTPL) is compulsory. The significance of this business makes any issues associated with it also material. So, what is happening with the compulsory MTPL in Turkey and what are the key issues?
The Turkish insurance market is facing an increasing explosion of bodily injury claims in recent years. The problems seem to be getting bigger with time, which is a sign that the necessary actions are not being taken as yet. ‘What are the main drivers?’ you might ask. An important driver can be described in a few words: Bodily injury claims & Ambulance chasing. Personal injury lawyers, or other intermediaries, and their network of resources visit hospital beds, make unsolicited calls or even show up at funerals following the accidental death of a loved one. These network of organizations prey upon people when they are at their most vulnerable, emotionally, and exploit the system for profit.
The implications for insurers are drastic. It is estimated that only around 5% of claims are handled between the beneficiaries and insurers directly! The rest goes to intermediaries and lawyers to be dragged through the courts for as long as possible, with the aim of court settlements of the maximum claim amount. Today, around 50% of all bodily injury claims are paid thru the decision of courts. This figure will sure go up as some court decisions lead the way for more cases and more past liabilities to be dragged to court retrospectively. It would be safe to say, insurance companies do not seem to stand a fair chance of being able to reserve accurately to pay the future claims in Turkey today.
This is obviously not a fair game. Both the provider and the beneficiaries lose as lawyers and intermediaries systematically work the system to their advantage. Whether the Turkish regulators and lawmakers will follow mature markets like the UK and the US and step in to make it sustainable for the insurance industry is yet to be seen. Sector leaders are discussing approaches that could help to mitigate the problem, Insurance Association is putting efforts for changing the traffic laws, which has been a challenge in Turkey’s recent less than stable political environment.
Some examples of solutions from mature markets with similar problems in the past are minimizing the problem through a holistic approach of implementing a few precautions all at once such as:
- Making it difficult to drag a case through court without applying to the insurer first, or where the claim is under a certain limit, such as for example the GBP25,000 limit of the UK.
- Courts to adopt a certain set of assumptions and mortality tables that could be updated by a regulatory body. This serves to standardize the calculation of the claim amounts of bodily injury cases. One example is the adoption of Ogden tables by the UK courts.
- Regulations and restrictions around fees and activities of the lawyers and intermediaries, reducing their incentive to work the system to their advantage at the expense of insurance companies and at the expense of the ultimate payer, the honest policyholder.
I am looking forward to the times hopefully ahead of us, where we can talk about similar actions taken by the lawmakers. Let’s see what comes next in Turkey’s MTPL market, it sure is interesting.