A Bright Future For Participation Insurance

MAGAZINE 23.09.2021, 17:00
A Bright Future For Participation Insurance

Although Participation Insurance in Turkey is still in the development phase, the government has an important objective in making our country a participation finance hub. As the players of the insurance industry, we work hard to fulfill the goals and duties assigned to us in this regard. With this in mind, our public administration's emphasis on participation insurance and the participation pension system in the recent Medium Term Plans and Economy Reform Packages is very important for us.

Limits/Lines Of Participation İnsturance Clear 

The participation insurance, which started in Turkey in 2010, has a 11-year history. 12 companies are operating in the participation insurance industry as of the end of 2020. As is known, the Regulation on Insurance and Private Pension Activities within the framework of the Participation Principles was published on December 19, 2020. With this regulation, the boundaries of participation insurance in the Turkish insurance industry were clearly defined. The new regulation introduced a new standard that is easy to understand and self-regulated. Three basic principles of this regulation can be mentioned as follows: the compliance with the principle of interest-free system, not to insure the Islamically prohibited activities, the establishment of an advisory committee and the participation compliance unit, which is the secretariat of this committee to carry out insurance and private pension activities within the framework of participation principles. Another key innovation of the regulation is that it stipulates self-supervising structures. In addition to the supervision functions of the advisory committee and the participation compliance unit, an internal audit report should be drawn up for the participation insurance once a year to determine whether the activities of the Advisory Committee are carried out in compliance with the relevant legislation. The regulation contains clear provisions on participation insurance activities by the window procedure. Insurance companies that still operate through window management can continue to do so through the end of 2021. After this date, they will either establish a participation company or transfer their portfolio to the other insurance company that carries out participation insurance. When the points about participation reassurance in the regulation are taken into account, it is seen that there is an apparent public support available for the participation reassurance companies to be established in Turkey. In line with this opinion of the public, practices related to participation reinsurance are considered as a significant window of opportunity in Turkey's objective of becoming a participation finance hub.

The Share Of participation İnsurance Within The İnsurance Sector 

As of the end of 2020, life and non-life insurance premium production in Turkey reached 82.5 billion TL, and the share of the participation insurance sector in production reached 5.2% with approximately 4.3 billion TL. When we look at the first half production figures as of 30.06.2021, it is seen that 2.37 billion TL premium, which corresponds to 5.04% of the 47.1 billion TL insurance premium production, was produced by participation insurance companies. Despite the 11-year history of the participation insurance sector in our country, it should be considered as an important success that the sector's production reached 5% by gaining a serious momentum.

Share Of Participation Funds Within Prıvate Pansion Funds

As of 30.07.2021, the number of participants in private pension and automatic enrollment exceeded 12.8 million. The fund size of the participants in the system reached 186.4 billion TL, of which 22.3 billion TL was state contribution. The number of participants in the voluntary PPS exceeded 6.9 million, and the fund size was 172.5 billion TL, including the state contribution. The number of employees at automatic enrollment approached 5.9 million, and the fund size was 13.9 billion TL, including the state contribution. As of 30.07.2021, private pension and participation funds (interest-free funds) offered in OKS approached 36 billion TL and constituted approximately 19% of the total fund size. As of the same date, the size of participation funds offered only at automatic enrollment is 8.2 billion TL. This amount corresponds to approximately 62% of all automatic enrollment funds.

The Future Of Participation Insurance 

The share of participation insurance in the entire sector, which was 1.9% in 2015, reached 5% by 2021. We see that participation insurance is in a rapid development process. In addition, when the participation value chain is evaluated as a whole, it would not be wrong to expect a rapid development in participation-based insurance and pension activities in an environment where participation banking and participation capital markets develop rapidly. In the strategy document published by the Participation Banks Association of Turkey (TKBB) in March 2015, there is a target of 15% for the share of participation banking in the total banking sector by 2025. This target was also confirmed in the Participation Banking Strategy Update Report (2021-2025), published by the TKBB in 2021. Therefore, targeting similar sizes in terms of participation insurance would not be a dream. We believe that the Insurance and Private Pensions Regulation and Supervision Agency regulations will contribute significantly to the growth of the sector. We anticipate that the sector will achieve a significant growth momentum in the medium term with the optimistic view of the government in this area, the more effective use of the bank and agency channel potential, the entry of new participation players into the sector and the realization of the participation reassurance potential. With the increase in the number of companies entering the participation insurance market in recent years, the distribution channel network has proliferated, and it is possible to reach more participants. In addition, the increase in digital communication opportunities contributes positively to the development of participation insurance. We expect the positive developments in the banking and non-bank components of the participation finance system to have significant repercussions on the participation insurance sector. With the synergy created in line with all these developments, we fully believe that the sector's share in both insurance and pension fields will gradually increase in the coming period. In addition, we can expect the participation insurance model implemented in Turkey to come to the fore even more in the medium term and even to present an exemplary model to countries that operate in this field. I want to emphasize that all kinds of technical support will be provided on behalf of the Insurance Association of Turkey in order for our insurance companies to become a regional actors in the participation insurance business and that the public side also has full support in this regard.

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