The Turkish insurance premium dilemma
One of the editors of Euromoney Country Risk, to which I recently joined, was kind enough to share a recent article at their web site on insurance penetration. As the article noted, “Turkey is the least insured country in Europe, with only 1% of GDP going towards non-life insurance premiums.”
As a good old macroeconomist, I know little about the insurance sector in Turkey, except that it has been on the foreign firms’ radar for the past few years. So maybe there is my answer, right there. But I started also wondering if Turkey’s insurance penetration is too little compared to its GDP per capita. Luckily, I was able to find a presentation by Swiss Re (the data used in the ECR article are from them as well) at an OECD seminar, where that exact graph is given, saving me from doing it myself:)
I hate graphs that are not properly labelled: I think GDP per capita is PPP-adjusted; at least that’s how it should be, otherwise it won’t mean much. And judging by Russia and Brazil’s numbers (two of the few countries identified in the graph), the premiums are life-only. But I would think the graph for the non-life and total would not be different, either- as this was exactly the pattern described to me my the couple of Turkish insurance professionals I chatted with on Friday. I was told that insurance premiums stay low until GDP per capita of USD 10,000 or so, after that they jump up. Although I don’t think the fitted line has been done by any non-linear technique, it looks correct. Turkey is right at this threshold, which would mean that insurance premiums would increase a lot in the next decade or so.
But even then, Turkey seems to be below the fitted line, i.e. its insurance penetration is too low to be explained by GDP per capita alone. One of my contacts told me that devout Muslims would not want to have regular insurance, and that the Islamic version, takaful, is not present in Turkey at the moment. He is the expert, but I am surprised by this: Most Turks, even devout ones, don’t stick to Islamic banking practices; that’s why Islamic banking is dwarfed by regular banking in Turkey. So I would not think the affect of this on the premiums would be more than a quarter of a percent or so at most, but maybe I am mistaken.
So we are back at the supply explanation: Turkey has lots of potential for insurance, and that’s why foreign companies have been eying (and coming to) Turkey in the past few years…
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