Market Spotlight — Türkiye

Recent reports about Türkiye in mainstream media have painted a rather bleak picture – most have focused on soaring inflation rates, seemingly suggesting that the country is in economic turmoil and not a good place to do business in.

However, in a conversation with Middle East Insurance Review, Huntington Partners founder and managing partner Gerard Pennefather said that such reports do not paint the full picture and that Türkiye is a market with much potential for growth that is worth exploring for Insurers.

Growth outpacing inflation 

While inflation rates in the market have seemingly gone unchecked, the insurance sector’s growth has so far managed to stay ahead of it.
“The growth in the market exceeds inflation by at least 10 percentage points, so if inflation is running at 60%, we see the market growing at 70%, and that momentum’s been there for a while. That means there’s underlying growth in the insurance sector,” he said.

“The penetration rates are exceptionally low which inevitably will drive demand for insurance. We see not only the P&C market growing, but also life and health which is an incredibly attractive sector because it is very reliant on government [programmes] now, with private pensions being relatively new.”

The Insurance Association of Türkiye (TSB) has reported that the turnover of the whole market in 2021 reached TRY105.3bn ($9.18bn), which is 27.5% higher than in 2020. Non-life premiums grew by 28.5% to TRY87.6bn. Life grew by 22.8% with premiums at TRY17.7bn.

“Unfortunately, Türkiye gets caught up with news headlines, which are not particularly positive about the country. But if you have been there, as I have for quite a few years, you know the picture on the ground is quite different,” he said.

A potential hub servicing multiple regions

Huntington Partners has chosen Istanbul as a platform from which to access several regions, and Mr Pennefather detailed some of the reasons why he feels the Turkish city is ideally placed potentially to serve as an insurance hub. 

The country’s geographical location at the nexus of Asia, Europe, the Middle East and North Africa means that it is convenient to reach many parts of those regions within just a few hours via air transportation. This close proximity to major markets means that Türkiye offers easy access to 1.3bn people and a combined market worth of $26tn in GDP in Europe, MENA and Central Asia within a four-hour flight radius, he said. 

In addition, the city’s well- developed infrastructure and the upcoming Istanbul Financial Center (IFC) which could be a potential game-changer. 

On 1 June this year, a bill setting out the general framework of the IFC’s activities and regulating the applicable tax exemptions, incentives and exceptions was submitted to the Turkish parliament. 

According to a post by EY, some of the deductions and exemptions under the bill include:

  • Deduction of 75% from the corporation income of the earnings derived from exportation of financial services carried out at the IFC, provided that it is separately shown on the corporation tax return. This rate is applied at 100% for the taxation periods of 2022 to 2031. For institutions using a special accounting period, these periods cover the accounting periods starting within the relevant years
  • Banking and Insurance
    Transactions Tax exemption for transactions related to the exportation of financial services carried out at the IFC and the money received in favour of these transactions
  • Fee exemption on transactions related to exportation of financial services carried out at the IFC.

Mr Pennefather also pointed to how the country has a very skilled workforce, with several good universities producing graduates with extraordinarily strong logic, engineering, mathematical, programming and critical thinking skills.

“If you look at the above metrics, Istanbul has all the hallmarks of being a Hub in the region and over the past six to nine months or so, we’ve been getting a lot more enquiries about Türkiye and what’s happening in the market, and we see this as a very positive development,” he said.

Where is the demand? 

He also pointed out how there is demand for certain products like pet insurance in the market.
“There is this perception of Türkiye being a Muslim country and not particularly pet friendly, but it is far from reality. There are more dogs than I have seen anywhere in the world bar the UK. Pets are treated with profound respect, and I think every other person I know [there] has a dog,” he said.

Other areas where he sees more potential for growth and big opportunities for insurers include insurance for sports-related activities, financial lines, credit default, D&O, casualty lines, event cancellation and accident and health.

“Türkiye has got lots of infrastructure projects and big industries so construction, energy – both conventional and alternatives – are always in play. But we also see a remarkably interesting development in the B2C and the consumer space with very innovative companies which are developing new products to grow with the market,” he said.

A supportive regulatory environment

Despite the recent surging inflation rates, Türkiye’s regulator and insurance associations have continued to work on creating a better business environment, with the consumer at its core, while maintaining a level playing field in the insurance marketplace, said Mr Pennefather. 

“There’s been some consolidation because the state is now a bigger actor in this space with the amalgamation of several of the state-run insurance companies. So that has created a national champion,” he said. 

He added that Türkiye is one of the more efficient markets in the world in terms of collecting premiums. “It’s probably one of the more efficient markets I’ve seen in the world, so you don’t have the many difficulties you would find in other markets with premium collection.” 

Digital-savvy people

Türkiye has seen a proliferation of tech start-ups in recent years, many of which have gone on to become successful. These include software platforms, online marketplaces and video game companies. 

“Getir, Trendyol (e-commerce platforms) – these are big players that have come out of Türkiye – so there is a big take-up of digital among the people. Being digital savvy is an important thing because you see some incredibly significant players coming to the game,” said Mr Pennefather, adding that online insurance aggregators have been growing. 

Consumers are coping well with inflation

Even though the current high inflation rates are putting a squeeze on the middle- and lower- income segments of the population, the Turkish people have been through a lot throughout their history and are resilient enough to find a way around the challenges. 

“Consumer demand is still there. It is important to realise that the consumer is relatively rich in Türkiye – they inherently keep a significant amount of liquidity,” he said. 

“It is challenging on a day-to-day basis, but the country has a long history and people seem to be coping with things in a reasonable fashion. Notwithstanding the macroeconomic issues that you see, it is a population that just adapts and gets on with it to find a way to thrive.”