This country-specific Q&A gives a pragmatic overview of the law and practice of insurance & reinsurance law in Turkey.
It addresses topics such as contract regulation, licensing, penalties, policyholder protection, alternative dispute resolution as well as personal insight and opinion as to the future of the insurance market over the next five years.
This Q&A is part of the global guide to Insurance & Reinsurance. For a full list of jurisdictional Insurance & Reinsurance Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/insurance-reinsurance
How is the writing of insurance contracts regulated in the jurisdiction?
In Turkish law, parties can freely form insurance contracts subject to the rules and restrictions of, inter alia, Turkish Commercial Code (“TCC”), Insurance Act (“IA”) and Turkish Code of Obligations (TCO).
According to Article 1408 of TCC, insurable interest shall exist at every stage of the contract, failing which shall result in invalidity of contract. Retroactive insurance is allowed only when the parties of the contract or the policyholder who is informed of the existence of the contract, at the time when the contract is concluded, are not aware that the risk had already occurred or the possibility of such occurrence had ceased. According to the Article 1425/2 of the TCC, the content of the policy shall be parallel to the proposal and the insurance contract; in the contrary case provisions against the interests of insured, insurant or beneficiary shall be invalid.
Insurance contracts in Turkey must refer to general terms approved by the Undersecretariat of Treasury (the “Undersecretariat”) thus the relevant general terms are parts of the insurance contracts. Parties can freely agree on special terms provided that same shall comply with the standard general terms.
Where there is no regulation applicable, general provisions of TCO shall be applicable to insurance contracts.
Are types of insurers regulated differently (i.e. life companies, reinsurers)?
In general, life, non-life insurance and reinsurance companies are subject to the same provisions of IA and TCC. However, there are special provisions regulating their activities in certain aspects.
Are insurance brokers and other types of market intermediary subject to regulation?
In Turkish Law, market intermediaries are the agent and the broker and their structure and activities are also regulated. Activities of both agents and brokers are subject to a license Undersecretariat. There are specific requirements regarding the shareholding and management structure of insurance brokers. Shareholders, board members, auditors, authorized representatives and employees of insurance companies, insurance agents and survey companies shall not perform brokerage activities, become board members, auditor or shareholders of brokerage companies, be remunerated by brokerage companies for any work. Such requirements shall also apply to children of these persons. Insurance and Reinsurance Brokers Regulation no. 26913
Insurance agents shall also be registered in the Register maintained by the Union of Chambers and Commodity Exchanges of Turkey. Under the Article 23/4 of IA, an insurance agent can be deregistered in case that it no longer complies with the requirements. In the same way with the brokers, board members, auditors and authorized representatives of insurance companies, insurance brokers and expertise companies, insurance brokers and expertise companies cannot become board members, auditors, authorized representatives or shareholders of insurance agents or be remunerated by insurance agents for any work. Insurance Agents Regulation no. 28980 determines principles and requirements of agents’ establishment and operations.
Is authorisation or a licence required and if so, how long does it take on average to obtain such permission?
The Undersecretariat is the regulatory and supervisory and body dealing with the insurance and reinsurance activities in Turkey.
Companies intending to operate as insurance or reinsurance companies must obtain a license from the Undersecretariat within one year following their incorporation. A company failing to apply for a license within such period would not be able to use “insurance” or “reinsurance” in their titles. Insurance companies can only operate either in life insurance or non-life insurances. Reinsurance companies are not subject to this restriction.
Obtaining license for the first time and when the application and documents provided are in order would take around 3 months. Period for renewals of existing licenses could be limited with 2 months.
Are there restrictions over who owns or controls insurers (including restrictions on foreign ownership)?
According to the Article 3 of IA, an insurer can operate only in form of a joint stock or cooperative company. There are restrictions over both shareholding and management structures of insurance and reinsurance companies. These restrictions are generally related to the financial strength, good standing and criminal record history of founders and managers.
Article 3/2 of IA provides that the founders of an insurance or reinsurance company shall not have been bankrupt or been subject to an official debt restructuring procedure, must hold financial assets and shall not have a criminal record with respect to financial crimes.
There is no restriction to the foreign ownership of Turkish insurance and reinsurance companies. On the other hand, according to Article 1 of the Council of Ministers’ Decree No. 2007/12467 Regarding International Activities in Insurance Industry, foreign insurers intending to have activities in Turkey and reinsurance companies are required to establish a local branch.
Is it possible to insure risks without a licence or authorisation? (i.e. on a non-admitted basis)?
According to Article 15 of the IA, interests of Turkish residents can only be insured by companies who are licensed to write coverage in Turkey with limited exceptions such as cargo insurance for the goods to be imported or exported, hull insurance for aircrafts, ships or helicopters that are financed by foreign institutions, protection and indemnity covers for ships, life and travel insurances.
What penalty is available for those who operate without appropriate permission?
There are both administrative and judicial penalties to be imposed on those carry out insurance or reinsurance activities in breach of license requirements.
According to Article 34 of IA, workplaces where unlicensed insurance and reinsurance activities carried out shall be shut down by the authorities and all their advertisements and commercials are prevented or collected. Furthermore, real persons involved in insurance activities by undertaking the risk without obtaining a license, or use references to insurance market participants as regulated by IA in their corporate titles, documents, advertisements and commercials, or public statements, or use such words and phrases in a manner to give the impression that they are engaged in insurance activities shall be sentenced to imprisonment from three years to five years, and a judicial fine from 600 days to 1000 days.
How rigorous is the supervisory and enforcement environment?
The regulations regarding insurance activities are developed and enforced by the Undersecretariat in order to ensure that participants of insurance sector operate in accordance with the legislations and professional guidelines. All activities of insurance companies are closely overseen by the Undersecretariat.
How is the solvency of insurers (and reinsurers where relevant) supervised?
The Undersecretariat also supervises solvency of insurers and its Regulation no 26761 on Measurement and Evaluation of Capital Adequacy for Insurance, Reinsurance and Private Pension Companies sets out solvency requirements of insurance, reinsurance and pension companies in order to ensure that such companies keep enough equity capital to cover losses which may arise due to their existing liabilities and potential risks. Under this Regulation, capital adequacy statement has to be submitted to the Undersecretariat twice a year.
What are the minimum capital requirements?
Insurance companies shall raise their paid-up capitals up to such amount to be required by the Undersecretariat for each insurance type in respect of their license. The minimum capital requirement for insurance companies is TRY 5,000,000.-. The Undersecretariat might increase the required minimum paid capital amount for each applied branch license.
Is there a policyholder protection scheme?
Many provisions of TCC and IA are set forth for the benefit and protection of policyholders. Also, one of the main points to be considered, the main principle of “interpretation for the benefit of policy holder” is valid in insurance contracts.
TCC provide mandatory rules that might be amended only in favour of the policyholder, for instance; the implied approval of the insurer in case of silence at the time of conclusion, scope of the insurance cover, termination of the insurance contract, payment and refund of the premium, pre-contractual information of the policyholder, obligation to deliver the insurance policy, insurer’s obligation to pay expenses obligation to pay the indemnity, obligation to pay the premium, duty of disclosure.
How are groups supervised, if at all?
Life insurance, non-life insurance and reinsurance groups generally are subject to the same regulations, however the requirements for obtaining a license differ.
Do senior managers have to meet fit and proper requirements and/or be approved?
According to Article 4 of the IA, members of the board of directors of insurance companies should meet the required qualifications of founders of an insurance company and reinsurance company apart from financial power requirement; the required qualifications regarding education and work experience are stipulated in the IA. The general manager and deputy general managers of insurance companies shall meet the required qualifications of founders of an insurance company and reinsurance companies apart from ones regarding financial strength.
Are there restrictions on outsourcing parts of the business?
Turkish insurance companies can outsource operational parts of the business subject to the restrictions set out in the Regulation no. 29459 on Insurance Support Services, issued by the Undersecretariat. Accordingly, insurance and private pension companies are allowed to outsource ancillary services that are not central to their insurance business such as the claims handling, limitation of risks and losses, salvage and rescue services, health consultancy. Services seconded employees from other firms, legal and tax consultancy services and advertisement services are not subject to these restrictions and can be freely outsourced.
Insurance and private pension companies are required to submit annual reports on the information about the risk management and cost/benefit analysis of their outsourced operations. They are also liable all the damages and losses arising from the outsourced services.
Service must be incorporated in Turkey and registered with the service provider list maintained by the Insurance Information and Monitoring Center. They also need to have appropriate resources and experience, as well as a clean track record in all jurisdictions within the last five years.
How are sales of insurance supervised or controlled?
Insurance activities in Turkey are subject to Act on the Protection of Competition numbered 4054. Agreements, decisions and practices preventing, distorting or restricting competition in markets for goods and services, and the abuse of dominance by the undertakings dominant in the market fall within the scope of the relevant rules of this Law.
Also usage of the insureds’ personal data might be subject to the Personal Data Protection Law numbered 6698. The Personal Data Protection Law's objective is to protect, in particular, the right to privacy and other fundamental rights and freedoms of individuals in the processing of personal data, and to regulate the procedures and principles for individuals and legal entities processing the personal data. Insurers’ transactions might be subject to the sanctions in the Personal Data Protection Law.
Are consumer policies subject to restrictions? If so, briefly describe the range of protections offered to consumer policyholders.
Consumer Law numbered 6502 is applicable for the insurance contracts where cover is not related to a commercial activity. It provides that an insurance cover cannot be mandatorily requested (by financiers, etc.) and the consumer can freely conclude any insurance contract.
TCC also provides certain rules that could only be changed in favour of policyholders. The insurer shall inform the policyholder verbally and in writing regarding all matters related to the insurance contract, the insured’s rights, the provisions to which the insured has to pay special attention, notification duties that may arise in the course of insurance cover. The insurer shall also keep the policyholder during the contract period informed of the facts and developments that can be of importance relation to the insurance.
Are the courts adept at handling complex commercial claims?
It is not positively confirm that Turkish courts adept at handling complex disputes. Generally, the courts appoint experts and rely on their opinions. This makes the litigation process slower as one expert opinion generally does not seem to be satisfactory.
Is alternative dispute resolution well established in the jurisdiction?
Disputes arising from insurance claims might be resolved through mediation or arbitration.
Court mediation is also established and the courts are required to encourage the parties to try mediation.
Institutional arbitration in insurance disputes with the Insurance Arbitration Commission has a well-established system based on membership of the insurance companies. If the insurer is a member, than the dispute can be brought before the arbitrators under specific rules and the award is appealable where the amount in dispute exceeds TRY 40.000,00.
What are the primary challenges to new market entrants?
Despite Turkey’s growth potential in recent years, there are certain unique challenges especially in insurance market, such as strict regulations and sudden changes in legislation. The Undersecretariat plays an active role supervision of insurance companies, and the new entrants have to carefully consider its requirements.
To what extent is the market being challenged by digital innovation?
Many insurance companies are developing their digital innovation capabilities while facing challenges and trying to understand this new era is reshaping the insurance sector. Active use of digital platform as an important sales channel resulting positively growth.
Digital developments open new doors to insurers at every stage of sales, thus insurers are now under pressure to go digital, unless they might be behind the deepened competition in a new platform.
Over the next five years what type of business do you see taking a market lead?
Individuals face an increasing variety of financial risks which might not be covered by public funding. Private individual insurance products therefore play an essential role in protection against social and financial risks. According to the statistics, individual insurance market achieved a significant growth, consumer awareness of where to get health insurance has been raising in recent years. Considering the rise of consumer awareness in this area, individual insurance market will be grown in future years.