The Insurance Assocation’s report “Shaping Our Future: 2023 Vision for Turkish Insurance and Pensions Sector” sets some heady targets for the industry by the time the Turkish Republic reaches its century.
In this article I want to flesh out some of the factors behind the headline figure of non-life branch premium increasing fourfold to 63 billion Turkish lira, maling Turkey the 16th largest non-life market in the world.
First of all, this is the “high aspiration growth scenario”. As actuaries, we are used to scenario testing. Using full stochastic methodology we would run a model on a range of assumptions, all calibrated to represent the probable likelihood of them coming true. In presenting the results to our clients we may choose to illustrate a few of these scarios calling them “market consistent” or “best-estimate” or “pessimistic” or “optimistic”. We may prefer to use euphemisms rather than the latter two, choosing to call them “cautious” or “aggressive” respectively.
There is also an “accelerated growth scenario” which, although producing very favourable figures to today, is considerably less sexy than the numbers being bandied about from the high aspiration growth scenario.
Suffice it to say that the headline figures reported in the media relate to the “optimistic” or “aggressive” or “go-go-go” scenario. The Shaping Our Future report selects the name high aspiration growth.
Today, GWP in the non-life market stands at 15 billion TL. Real compounded growth per annum during 2006-2011 stood at 3% per annum. Continuing this to 2023 would give non-life GWP of 21 billion TL.
The accelerated growth scenario increases the real compounded growth rate to 6%. This would bring the non-life GWP up to 30 billion TL. But in this scenario there will also be what are described as “minor corrective actions of players or regulator”, increasing the 2023 non-life GWP to 48 billion TL.
Assumptions here include:
· The number of motor vehicles increases to 35 million vehicles, but motor penetration remains as it is
· The population increases to 84 million population, while health penetration increases in line with GDP per capita
· Stable non-motor penetration, with growth driven by GDP growth
The high-aspiration growth scenario increases the real compounded growth rate to 8%. This would bring the non-life GWP up to 38 billion TL. Superimposed on this are “market discontinuities driven by players or regulator” which give projected 2023 non-life GWP of 63 billion TL.
Assumptions here include:
· The number of motor vehicles increases to 35 million vehicles, and motor penetration increases in line with recent years’ increases
· The population increases to 84 million population, while health penetration increases in line with GDP per capita and government actions
· The penetration of liability products, compulsory earthquake insurance and subsidised agricultural products increases to the level of penetration of motor
· The penetration in fire cover doubles
The breakdown of non-life GWP between three main lines under these scenarios is as follows:
Motor: 7 bn TL
Health: 2 bn TL
P&C non-motor: 6 bn TL
Accelerated growth scenario:
Motor: 26 bn TL
Health: 8 bn TL
P&C non-motor: 14 bn TL
High-aspiration growth scenario:
Motor: 29 bn TL
Health: 14 bn TL
P&C non-motor: 20 bn TL
Currently the 28th largest non-life market in the world by GWP, these figures would make Turkey the 16th largest. If in addition health insurance were privatised, Turkey would be the 6th largest non-life market in the world.
As a life actuary I hesitate to stake my colours to the mast and give an opinion on how likely each of these scenarios is for non-life. (You must know the old joke about the most expensive actuarial consultant being the one-armed consultant because he cannot say to his client “on the one hand this, but on the other hand that”!)
But suffice it to say that the high-aspiration scenario can only be achieved with a serious political will to ensure that mandatory insurances really are mandatory (currently the only time there is a check on the earthquake insurance is the moment you buy or sell a house) and a transfer of insurance provision from the State to the industry in areas such as health cover.