Let's take a look at the perception of the country abroad and the impact of the economic and political developments and atmosphere on the insurance industry and policyholders. Despite the fact that we feel its effects less in private insurance policies, when it comes to corporate and industrial risks, the perceptions and approaches of foreign reinsurance markets about the country, and most of all their concerns, can cause difficulties for the market in terms of the availability and continuity of insurance coverage. In recent years, we have observed situations where the global reinsurance market has refrained from bidding for certain risks, reduced their capacity, sent additional inquiries or requests and, in a manner of speaking, made a heavy weather. Let me illustrate with a few examples:
A few years ago, we started working on the renewal of a financial institution's Banker's Blanket Bond and Directors and Officers Liability (D&O) insurances. Around that time, financial risk insurance had hit turbulence all over the world. The leading insurer dominating the Turkish market had started to pull out of the business, and indemnity limits previously offered in the double-digit millions were becoming hard to find. The London market, which had been insuring Turkish risks for years and had an appetite for it, had pulled out; Dubai and European markets began to express caution. The global market was also in a general state of distress, but the view of Turkish risks was even more negative, sometimes even outright rejection. We had already started our work months in advance; as such, we expanded our global network and started organizing online roadshows to introduce ourselves to new markets. During the pandemic, an intensive process began in which we explained Turkish risks and ourselves, including South America, Asia, India and Africa. These were risks that we could not simply ignore, because it is not possible to give up some insurances due to liabilities - otherwise the insured would not be able to continue his/her activities - and we could not take the risk of not being able to find insurance again.
Most of the markets were kind enough to say "Bye" and leave with the words "It was nice to meet you, we hope we can work in something else"! Some said that they did not know the Turkish risks and needed to research; some said “you always create competition and make us work for nothing and then don't give us any work” (I can't say they were wrong), some said “I am now out of tier 1 (primary) and entering tier 2 or even tier 3 limits (XS market)”. The number of positive responses was decreasing and it was unclear how long those who did respond would do what they said. One day, a UW from South America, if I am not mistaken, said, “We are following the developments in Turkey. We do not want to insure your executive liability (D&O) risks due to government appointments in the public and private sectors, especially in financial institutions. The people appointed do not have enough background and experience to make decisions. The decisions of incompetent board of directors and executives may put the institutions at a loss, which increases our risk, sorry.” He was talking about merit.
As it was already difficult to find insurance in the D&O market, which was already in crisis at the time, it was also necessary to respond appropriately to these questions and comments. And it was not only the insurers who took notice. When a company does not have D&O insurance, successful Turkish and foreign executives, who perhaps have important knowledge and know-how for that company and eventually for the country, do not want to take risks and work in those companies. According to the Turkish Commercial Code, members of the board of directors are liable for damages incurred by the company or shareholders as a result of their decisions, including their personal wealth. D&O insurance is an insurance that protects those in decision-making positions against such risks. Companies without D&O insurance may find it difficult to employ visionaries with valuable experience.
Expressions of concern about the judicial system and its functioning are not directly expressed but are implied. I have a hard time both listening and explaining these, on the one hand, it offends me, but it is a reality. When insurers are worried about judicial decisions, they either do not bid at all or they insure the risk quite expensively, moreover with more severe and challenging conditions. Like many foreign investors who are concerned about this issue, the way the legal system works and the rulings are also of concern to the reinsurance market. They insist on use of their own country's or global laws and courts for potential disputes.
Recently I got a call from an acquaintance living abroad. They have a company that is engaged in production for the energy sector, and they have taken out receivables insurance, a special insurance that I will share the details of in the future. In receivables insurance, insurance companies usually provide coverage for buyers with small limits without waiting, sometimes automatically. When they requested a limit for a new customer in Turkey, they received approval, but this time with a note, “since the level of political risk has increased in the country in question, receivables that may arise from this are not covered”. This note was added right after the resignation of the CBRT governor. In effect, the insurer is saying, "there is no problem with the customer, we grant limits, but the economic decisions in this country increase the level of political risk, if an abrupt decision is adopted in economic policies, if there is a turmoil in the country and your customer cannot send you the money even though he has the money, do not come and ask for it from me". Reinsurers, just like other investors, are looking for stability in economic policies and authorities. You can find more details about political risks in my article Political Risks and Obnoxious Debt.
Moreover, in 2021, the FATF (Financial Action Task Force) of the Organization for Economic Cooperation and Development (OECD) included Turkey in its Gray List on which we are still on. In October 2021, FATF published its list of “Areas of Sovereignty to Enhance Oversight” and announced that Turkey was included in the Gray List. I addressed this issue in my article titled Gray list - Insurance relationship. According to the report, Turkey was found compliant in 11 out of 40 recommendations, largely compliant in 20, partially compliant in 7, and non-compliant in 2. A year later, Turkey remained on the gray list, citing 'serious' shortcomings in its anti-money laundering policies, supervision of high-risk sectors including banks, gold and gemstone traders, and its approach to non-profit organizations. In 2024, it is reported that decisive steps will be taken to exit the Gray List. I hope we will be off this list as soon as possible.
I should also mention PEPs, which have long become an industry standard and are included in KYC (Know Your Client) forms that contain information about insureds. PEPs (Politically Exposed Persons) are high-risk customers who have more opportunities than ordinary citizens to gain assets through illegal means such as bribery and money laundering. There are 3 types of PEPs in FATF: Foreign, domestic and international organization PEPs. Insurers' sanctioned individuals and PEP screening lists are quite crowded. The fact that a customer is a PEP does not mean that they cannot be approached: this is part of the risk assessment process and is intended to identify red flag warning situations in advance.
Let's add to these the problems regarding insurance transactions with embargoed and sanctioned countries. Sanctions pose a great challenge for insurers and insured persons. Although Turkey's trade relations continue, hundreds of companies with operations in these countries have difficulty in obtaining insurance, as the markets, agreements, financing institutions or partners with which they work are subject to sanctions. In fact, some large groups already have investments in sanctioned and embargoed countries, project financing, loans to be repaid and insurance policies taken out accordingly. When the sanctions began, even the files were finalized and the agreed damage indemnities could not be transferred.
Let's say you can no longer find coverage in Turkey or in the global market due to sanctions, in which case you need to find a solution in that country. Every country has different insurance laws and practices. There are some countries with very low capacity insurance markets, incompatible regulations or limited options. Multinational or internationally operating companies are highly affected by this situation while managing their insurance programs.
A year after the February 6 earthquakes, the reinsurance market shared their observations that the building and earthquake regulations put into effect after the 1999 earthquake had not been fully implemented, and stated that had the regulations been implemented to the letter and the buildings been inspected, there should not have been so much damage to the buildings. In spite of the fact that we have a very good earthquake and building code, reinsurance conditions are changing, prices are increasing, and some of them have even dropped out of Turkey's risks because of the perception that they are not compliant and reliable in terms of implementation and supervision.
The insurance market follows every country and monitors developments; every statement, announcement or court decision in a country sets many complex interconnected systems and measures in motion in the background. These and similar situations and global decisions affect the insurance market as in all sectors. The global market interprets what is happening by taking into account its own risks, checks the level of the risks they assume and positions themselves accordingly. As risks increase, detailed information is sought in questionnaires. The financials and shareholding structures of the companies to be insured are scrutinized. If the probability of the risk materializing increases, they withdraw from the market or change their terms and conditions.
Those with whom we are on good terms and with whom we meet frequently ask us before taking any action to better assess the situation: "What happened? What does this mean? How will it affect our business?" They have a point. This information is critical for a UW.
My aim today was to explain the impact of political and economic developments in countries on the local insurance industry. The insurance industry is a regulated sector that is highly compliant with global reporting and legislation. All local and foreign companies continue their operations in compliance with both local legislation and the global principles of their own groups. As a result, the production and service sectors are interconnected and complementary to each other. Problems experienced by one of them naturally affect the entire system. With its distinguished history, justice, rich and deep-rooted culture, commercial and economic achievements, experiences, young and dynamic population, agile and hardworking people, Turkiye is a very strong country that has earned its place among the world's largest economies. In order to strengthen the perception in the world and in the markets, it is necessary to take decisive steps guided by fundamental principles and values as a society, especially the public sector.
Every time I meet with foreign insurance markets, I remind them that similar situations have been experienced not only in our country but also in other countries around the world, including their own, that these have always been overcome, and that they should continue to do business by trusting us, and I will continue to do so.
Have a nice day.
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