Aufsichtsrechtliche Rahmenbedingungen für EU Versicherer
(Regulatory Conditions Concerning EU Insurers)
Prof. Dr. Samim UNAN
University of Galatasaray, Istanbul Turkey
AIDA Turkey (Past President)
AIDA World Presidential Council Member
Introduction
Turkish regulatory legal rules are provided by the Turkish Insurance (Control) Act 2007 (in short TICA). This act deals inter alia with the conditions under which foreign insurance undertakings may be involved in covering Turkish interests. The legal provisions are protective of the Turkish insurance sector. The protection is twofold:
-Restrictions imposed on persons residing in Turkey
-Prohibition/restriction imposed on foreign insurance undertakings with regards to insurance activities concerning Turkey.
In addition theTurkish legal system contains restrictions as to the activities of foreign reinsurers and insurance intermediaries.
Prohibition to take out insurance from foreign insurers
Article 15 of theTICA enumerates the insurances that must be taken out in Turkey from Turkish insurers (the so-called “Four Turkey” rule stated in the subsection 1) and the exceptions thereto (subsection 2). The heading of the article 15“Insurances eligible to be taken out abroad” seems paradoxical for it puts the emphasis on the exceptions to the rule rather than on the rule itself.
According to TICA Article 15(1)
“Persons residing in Turkey, for their insurable interests located in Turkey, must take out insurance within Turkey, from insurance undertakings active in Turkey.
Exceptions to the rule arehull insurances for vessels and aircrafts; liability insurance for vessels- P&I cover; life insurances; motor insurance, health, sickness and personal accident insurance covering the period of stay abroad).
The reasons behind the exceptions were
-the non availability of the cover in the Turkish insurance market (P&I cover could not be obtained until recently from any Turkish insurer)
-the requirement from lenders who finance the purchase of vessels or aircrafts that hull insurances be taken out from insurers they approve
-the compliance with territorial restrictions and local needs (insurances that may be needed during stay abroad)
-free circulation of money and savings (life insurances)
Conditions under which foreign insurers or reinsurers may starts and pursue professional activities within Turkey
Article 3(5) TICA reads as follows:
“The rules about the activities of the foreign insurance and reinsurance undertakings within Turkey shall be determined by the Government”.
Turkish Government took delegated act by its decision dated 3 August 2007 and determined the general framework.
The decision determines the rules applicable to
–Insurance and reinsurance undertakings
–Loss adjusters
–Insurance agents
However the decision omitted to provide rules about the foreign brokers.
Foreign insurance and reinsurance undertakings
Pursuant to Article 1 (1) of the Government decision
-Foreign insurance and reinsurance undertakings are allowed to be active in Turkey only under the condition that they establish a branch.
-The paid capital allocated to Turkey by the foreign undertaking must not be less than what is required from Turkish insurance/reinsurance undertakings.
- To be eligible the foreign undertaking must not be banned from activity in its home country.
Article 1(3) deals with the internal organisation: In the central branch, there must be a panel of officers having the powers and duties of the board of directors. The general manager and the deputy general managers of the branch are assimilated to the general manager and deputy general managers of a Turkish insurance undertaking.
Article 1(4)is aimed at providing the same playing field: The officers and directors and auditors of the branch are subjected to the same rules as the officers, directors and auditors of the Turkish insurance/reinsurance undertakings. The branch is subject to the same rules as a Turkish insurance/reinsurance undertaking.
Foreign loss adjusters
The rules about foreign loss adjusters are provided by article 2 of the Government decision. Foreign loss adjusters are allowed to be active in Turkey in accordance with the principle of reciprocity. However loss adjusters appointed by foreign reinsurers in respect of reinsurance agreements are excepted.
On the other hand foreign loss adjusters, while they pursue activities in Turkey, are subjected to the rules applicable to Turkish loss adjusters.
Foreign Insurance agents
The activities of the foreign insurance agents within Turkey are regulated by Article 3 that puts different rules for real persons and legal entities:
-Real persons: They must fulfill the requirements provided for Turkish real persons insurance agents
-Legal entities: They must establish a branch in Turkey.
Foreign insurance agents active in Turkey can intermediate only on behalf of insurance undertakings also active in Turkey. They are precluded from intermediating for foreign insurance undertakings.
Regulation in respect of Insurance brokers
In 2015 new regulations are adopted in respect of brokers. The conditions under which foreign insurance and reinsurance brokers may pursue professional activities were also renewed.
According to the Article 7 of the Regulation about insurance and reinsurance brokers
-Foreign brokers must establish a branch
-They must fulfil the same conditions as Turkish brokers
-They must apply to the competent authority (Turkish Regulator) to obtain license or licenses in the insurance/reinsurance classesin which they desire to be active.
Practice
At this point we must ask the following question: Are the abovementioned rules applied?
For foreign insurance/reinsurance undertaking the answer is negative. There is no foreign insurance or reinsurance undertaking coming to Turkey to establish a branch. Foreign insurance/reinsurance undertakings prefer founding Turkish companies or buying already established Turkish insurance companies. In other words they invest in Turkish entities.
The situation is similar for foreign insurance intermediaries. There is no foreign insurance broker or foreign insurance agent whichhas fulfilled the relevant conditions for being active in Turkey. It is obvious that there is little need for the involvement of foreign insurance agents which normally are not familiar with the local market. The same is also valid for foreign insurance brokers. Nevertheless foreign insurance brokers may intervene to find cover that is not offered by local insurers and in that case their servicewould be most valuable.
On the other hand we must also underline that many foreign loss adjusters (appointed by foreign reinsurers) exercise their profession to assess losses and to determine the causes thereof throughout Turkey particularly when it is question of important casualties.
Turkish Insurance Market
Nowadays more than 70% of the existing shares of the insurance undertakings are in the hands of foreign investors. Allianz, Axa, Ergo, Groupama, Ace, Liberty, AIG, HDI, ING, Cygna, Egeas, Mapfre, Generali, Coface, Euler Hermes, Atradius, Aviva, BNP Parisbas Cardif, Dubai Star, Zürich, Sompo Japan, Eureko are among the international insurance undertakings which are also active in Turkey through their local subsidiaries.
Reinsurers
For reinsurers the situation is different. Treaty reinsurers are those belonging to Alpine tradition (Münich Re, Swiss Re, Zurich). Facultative placements occur in a broader extent with those belonging to maritime tradition (London market).
Foreign reinsurers are not allowed to directly engage in reinsurance activities within Turkey.However Turkish insurers can apply to them in order to conclude agreements. When the contact is established via distant communication means, it is not easy to pretend that there is direct activity in Turkey.
On the other hand, as mentioned above, foreign reinsurers often intervene through loss adjusters or other staff during the claim handling process.Such interventions are not regarded as illegal activities (or activities in respect of which there is the requirement to obtain license.
A similar question arises with regards to claims control clauses, claims cooperation clauses, cut through clauses and premium collection clauses.
Although the Turkish Regulator is opposed to the transfer of the claims handling process into the hands of a third party, it is not opposed to the Turkish insurer becoming a “postman” when reinsurers are on the stage.
For some of the other problems concerning foreign reinsurers please refer to my short work about “industrial insurances”
Industrieversicherungen
Industrial insurances
Prof. Dr. Samim UNAN
University of Galatasaray, Istanbul Turkey
AIDA Turkey (Past President)
AIDA World Presidential Council Member
In this short article I will summarize the practice of indusrtial insurances in Turkey. At the very beginning it would be appropriate to emphasize what is meant by “industrial insurances”. They may be described as “insurances taken out by big industrial, commercial firms or service providers. In this context are taken into account in particularfire, liability, technical insurances and extended coverage insurance.
The main characteristics of those insurances are the high potential of loss, low frequency of risk materialisation, complexity of the risks and the transborder activity of the policyholder.
In some instances insurers may provide to their customers additional services such as risk analysis or risk management.
Large risks
The notion of large risks does not exist in Turkish Law. As a result of this the mandatory provisions applicable to consumer insurance contract apply also to industrial insurances (including inter alia provisions about the precontractual information requirements incumbent on the insurer and restricted sanctions in case of breach of legal or contractual duties.
It is worth noting that more than 70% of the legal provisions about the insurance contract have mandatory character and in most cases they are provided to secure the policyholder’s position. Thus insurance contracts aiming to protectagainst insdustrial risks are governed by rules favouring the policyholders/insureds and the insurers are not allowed to escape.
General conditions of insurance
In Turkey too (as in many countries) insurance contracts are entered into on the basis of the so-called “general conditions of insurance”(in the sense of “ contract terms prepared in advance for being used in the future in similar contracts”).The general conditions of insurance are determined in Turkey directly by theTurkish Regulator.The main content of the insurance contract must be conform to the (official) general conditions (Insurance Activities (Control) Act 11(1)) .As may be seen easily on the first lecture the meaning of this rule is very ambiguous (“main content”?). In addition to this uncertainty, there is a widespread belief that derogations to those general conditions are permitted only if not detrimental to the policyholder (even if those derogations are not violating any mandatory rule). The source of this belief is that constantly one of the last provisions of the general conditions states “the parties may agree otherwise only to the detriment of the insurers”. It is obvious that this statement goes against the fundamental legal principles. The parties to the contract are free to convene whatever they may wish unless it conflicts with the mandatory rules. The legislator in Turkey was too generous in providing mandatorily applicable provisions in the field of insurance contract (as underlined above compulsory rules amount to70% of the total rules). Besides the contractual freedom is under the guarantee of the Constitution andthe administrative bodies are not authorised to use the competence of the Parliament and grant mandatory character to a contractual provision. Hence we are of the opinion that if the parties to an insurance contract agree otherwise than the general conditions of insurance this agreement is valid (if conforming mandatory legal provisions in force) and in cases where the agreement is placing the policyholder in a situation less favourable than the general conditions of insurance they will be deemed to have simply deleted the general contract term which prohibits the agreements to the detriment of the policyholders.
However in practice agreements to the detriment of the policyholders/ insureds are regarded as invalid and this puts the insurers in a difficult position: Insurers are trhen compelled to mke a choice between “take or leave” (all or nothing). They will then either accept a risk pursuant to a standard contract or refrain from entering into the contract. We don’t believe that this is a good solution. It is better if the insurers are given the possibility to grant cover under certain restrictions than not covering at all.
All risks- named perils
Turkish Insurance Activities (Control) Act article 11(4) seems to prohibit insurance contracts made on a “named perils” basis. This provisions reads as follows: “The contract must specify (in addition to risks covered) risk that are excluded; otherwise they will be deemed covered”.
This unusual provision was due to the reaction of the members of Parliament to the fact that sometimes the policyholders are not aware of the exclusions and this leads mostly to unhappy surprizes. Consequently Turkish legislator invented a new solution: Insurers would be liable for risks which are not expressely mentioned as excluded in the insurance contract.
The consequence of this new Turkish solution is that all insurances contracts would be (or deemed as entered into on) “all risks basis”. However such a restriction is not justified since in many cases contracts made on named perils basis are more appropriate (lesspremium)andwidely used in practice. On the other hand the problem of awareness (of the exclusions) may be remedied in an efficient manner by the accomplishment of the precontractual information requirement imposed on the insurer. Therefore Turkish legislator did not choose the right solution.
In practice it is not easy to conceive how insurers would expressely state the risks “uncovered”. If the insuring clause of an insurance contract made on named perils basis defines without ambiguity the risk(s) fallingwithin the ambit of the cover, at the same time the risks uncovered (logically) are also defined (risks not covered are uncovered: If A (only) is covered, then B, C, D .....are not covered = what is not A remains outside of the scope of the coverage). However it is probable that the judiciary expects more from the insurers to comply with the law: A general definition of the risks covered may not be sufficient to admit that the insurers by so doing have also performed their obligation to mention expressely the exclusions.
Insurances specifically regulated
In respect of many industrial insurances there are official general conditions. They are:
Fire (extended coverage) (PD)
Business interruption (BI)
Machinery breakdown
CAR (Constructors all risks)
EAR (Erection all risks)
Liability (Public-Products-Employer’s-Professional liability)
Credit - Surety
Fire insurance
Extended coverage:
–Strikes, lock-out, riots, civil disturbances,
–Malicious acts
–Terror
–Earthquake, volcanic eruption
–Storm
–Snow weight on roof
–Floods
–Landslide
–Water conduit
(Hail remains a risk not included. Coverage may be obtained by wayof special agreement. Turkish insurers are generally reluctant to cover that risk)
Fire insurance
Although providing a very broad coverage (through the endorsements), the fire insurance in Turkey has not been designed as an “all risks” contract. This is a named perils insurance. (However one should bear in mind that pursuant to article 11(4) Insurance Activities (Control) Act the insurer is required to enumerate the risks excluded otherwise it would be deemed to have granted coverage for them too).
Fire insurers must determine carefully to whom to pay the insurance money: Those who have property rights (“dingliche Rechte”) on the subject matter insured, may request payment (to the extent that their rights are adversely effected by the materialization of the risk). Not only mortgagees but also those who have a right of usufruct will benefit from the insurance. The legal text is too wide to encompass any kind of property rights
Machinery breakdown
Turkish general conditions provide all risks coverage for loss or damage suddenly occurred.
The sum insured is the price of the new machine (including transport, erection costs, customs duties).
Insurance indemnity will be determined
–in case of repairable damage, without deduction of new for old (spare parts)
–in case of total loss as the new machine price less deduction for wear and tear + salvage value
Business interruption
According to Turkish general conditions of business interruption insurance, the precondition of the cover is the materialisation of a risk covered by a fire insurance. The interruption of the business must occur as a result of fire or other covered perils and the assets of the insured used for commercial purposes must have been lost or damaged consequently so that the insured’s commercial activity must have been stopped giving rise to a loss of profit.
Insurers will pay that loss of profit caused by the loss of turnover (or the expenses incurred in order to avoid the loss of turnover) during the indemnity period (defined as the period that runsfrom the day of the loss of or damage to the assets up to the cessation of the interruption.
CAR
CAR insurance grants insurance protection against loss or damage to items covered, caused suddenly while they are in the construction site. The sum insured is equal to the value of the project at the end of the construction work (the sum insured is to be adjusted every year).
Insurance indemnity to be paid will be calculated
–in case of total loss: as the value of the insured item before the loss less salvage value
–in case of damage as the amount necessary for reinstatement of the insured item to its state before the damage plus expenses (workmanship, transport, customs duties)
The maximum indemnity will not exceed the value of the damaged item just before the damage.
In the context of CAR insurances “maintenance period cover” is also available. The maintenance period will begin to run from the completion of the construction or from the preliminary acceptance of the work or after commencement of effective use, as the case may be.
Losses indemnified by the insurers in the maintenance period cover are
–Loss or damage caused by repair works (done by the constructor pursuant to the contract provisions)