Turkish insurance: more deals to come | beyondbrics

Reluctant customers

Turkey?s insurance sector could be heading for a period of consolidation following the announcement that Germany?s Allianz is to buy the non-life and pensions business of Turkey?s Yapi Kredi.

That deal makes Allianz Turkey?s biggest non-life insurer and largest private pension provider by portfolio size and the third largest life insurer. But analysts say there could be more deals to come ? and plenty of opportunity for growth in an under-insured country.

Allianz will have around 15 per cent of the Turkish non-life market, allowing it to leapfrog sector leaders Axa and Aandolu, as well as 21 per cent of the pensions market putting it just ahead of Anadolu on 20 per cent, and 11 per cent of the life market, giving it third place.

But despite its clout, Allianz may face an uphill struggle to persuade Turks of the need to take out insurance in the first place, analysts say.

?The perception of risk in Turkey is low and so is penetration, and profitability so insurers have to look to economies of scale,? says Recep Demir, insurance analyst at Istanbul?s Garanti Securities.

Importantly, Allianz?s deal for Yapi Kredi?s insurance arm includes a 15-year agreement under which Yapi Kredi ? Turkey?s fourth-largest bank by assets and loans, will continue to market Allianz products on an exclusive basis.

That?s an important consideration says Demir, pointing out that one of the reasons for the low profitability of Turkey?s insurance sector has been its antiquated market structure.

?Sixty percent of policies are still sold through insurance agents who take a share of the premium,? says Demir.

And with Turkey still resisting the growth in online and direct telesales of insurance seen elsewhere in Europe, selling insurance through bank branches and web sites offers a good route to increasing profitability.

But even with banks taking a greater share of policy sales there is, says Demir, considerable scope for consolidation.

?We should be expecting some more mergers or acquisitions,? he says pointing out that Turkey?s underdeveloped insurance market does offer considerable scope for growth.

Currently the ratio of non-life premiums to GDP is only marginally over 1%, lower than the rest of Europe, with the exception of Greece.

However, Turkey?s low awareness of risk is changing. In part this is thanks to better implementation of legislation on compulsory forms of insurance such as motor vehicle insurance and earthquake insurance.

Taking out quake insurance is a now a condition for new houses to be hooked up for electricity and water.

But it?s also part due to Turkey?s young population, around 30 per cent of which is under 30, and more likely than their parents to hold credit cards and to buy newly-constructed homes, both factors which have boosted policy sales over the past decade.

Also helping are moves by the sector itself to offer a wider variety of products more likely to appeal to new consumers.

?In the second half of the year we will see the launch of new types of traffic insurance which will allow consumers to buy lower cost insurance offering a lower level of benefits,? explains Demir adding that this should help encourage higher uptake and help improve margins.

Related reading
Allianz to buy Turkish insurer for ?684m FT
Turkey: under-insured for earthquakes beyondbrics

Source: http://blogs.ft.com/beyond-brics/2013/03/28/turkish-insurance-more-deals-to-come/

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