Introduction

The Turkish FinTech ecosystem has been growing and attracting global interest since the beginning of 2016. Recent developments have brought banks, financial services incumbents, FinTech startups, investors, policy-makers, regulators, experts, and professionals closer together in a stronger ecosystem. In 2016, FinTech startups raised US$29 million compared to US$4.6 million in 2012, and 47% of the total startup investment was made into them. FinTech is now the top investment category in Turkey.

In a report published by Deloitte and Global FinTech Hubs Federation in 2017, Turkey’s financial centre, Istanbul, is listed as a “new” FinTech hub among 44 cities across the world.¹ Most of the 200+ FinTech companies operating in Turkey are based in Istanbul. A majority of these startups provide innovative payment and digital banking solutions. A closer look at the players in the FinTech ecosystem reveals that the number of startups operating on the InsurTech scene is very low.

Insurance in Turkey: The Industry Overview

The insurance sector is regulated by the undersecretariat of Turkish Treasury. As of March 2016, there are 65 authorized insurance and retirement pension companies in Turkey (39 non-life, 8 life, 17 pension, 1 reassurance).² Multinational companies, such as Allianz and AXA, are strong players in the insurance industry. Currently, Allianz is the market leader of the non-life insurance segment while Ziraat is dominating the life insurance segment.³ Motor insurance, health insurance, home insurance, life insurance, and the compulsory earthquake insurance are the main products offered in the Turkish insurance market.

During our interview, Accenture Turkey’s Digital Transformation Senior Manager, Cansen Ergun, stated that the total premium production increased by 41% between 2010 and 2015. However, compared to peer countries, the Turkish insurance market is still underpenetrated as total premiums as a percentage of GDP represent only 1.4%.⁴

In our interview, Accenture Turkey’s Digital Country Lead, Erdal Guner, mentioned that unlike the banking industry, which has multiple customer segments, there are two main customer types in the Turkish insurance sector: individual customers and business customers.

Cansen Ergun explained that customer ownership lies with insurance agents for most of the products and insurers remain relatively passive in customer segmentation as they don’t possess sufficient information to make a detailed analysis. However, she added, they do leverage banks’ customer segmentations (corporate, retail, affluent, etc.) for products sold through bancassurance.

While Turkey is advanced in digital banking, insurers are lagging behind in technology usage.⁵ However, Cansen Ergun shared that customer behaviour has been evolving along with the rise of digital connectivity: customers need and demand greater transparency, quicker access to information, price and service comparison platforms, and reliability, urging insurers to utilize digital channels.

The Turkish InsurTech Ecosystem

According to Start-ups.Watch, there are 12 active InsurTech companies that have raised US$2.1 million in the last two years, showing that the InsurTech market is untapped in Turkey.

Most of these InsurTech companies, such as Sigortam.net, Sigortayeri, and Sigorta Dukkanim (“sigorta” means insurance in Turkish), are aggregators; they are comparison websites providing customers with quotes from different insurance providers. Other than aggregators, there are data and risk analysis companies like Reidin and UrbanStat; policy management companies such as PolitaSIS and Polibis; and risk management companies like Globit and Risklator operating in the market.⁶

Main Challenges

There are several reasons why the insurance industry has not yet fully embraced technology, and why InsurTech has a tiny share in the Turkish FinTech market:

1. Individual insurance customers are generally sceptical towards insurance companies, and their trust in insurers and awareness in relation to having insurance policies are quite limited. Most customers don’t realize why they need insurance, don’t clearly know what they are buying or understand the terms and conditions, and think that they haven’t been given the right information about the products. Moreover, in Turkey, the more income an individual has, the greater their willingness to have an insurance policy. Recent data show that even in the compulsory insurance categories, the expected results have not been achieved. While in the compulsory traffic insurance category 81% of the vehicles are insured, in the compulsory earthquake insurance category only 31% of homes are insured.⁷

2. 2.Insurance products are sold via two main distribution channels: insurance agents selling 63% of non-life insurance products, and banks selling 79% of life insurance products (mostly with their credit products).⁸

   At the same time, the current proportion of insurance policies that are being sold purely on digital channels is very low. Insurance companies neither promote digital channels enough nor lead customers to use them. In our interview, Erdal Guner said:

   Insurance companies in Turkey consider insurance agents as their “main customers” since agents are crucial distribution channels. They are less willing to bypass agents and communicate with customers through digital channels as they don’t want to upset their agents holding the relationship with them.

   Cansen Ergun also commented:

   InsurTech start-ups in Turkey can remove the intermediaries in acquiring and retaining customers after having enough capital and getting a license to operate. However, the power of agencies in the current model means higher barriers to entry for InsurTech start-ups.

3. Current regulation, access to capital, and gaining a licence to operate are the challenges facing new entrants in the insurance sector. Erdal Guner stated:

   I believe that the first successful InsurTech initiatives in Turkey will come from large incumbents that can focus on innovation easily as they already hold the licence and have the capital to operate. However, after gaining its licence, if an InsurTech start-up can come up with an innovative model around service business, it will have a chance to succeed before the large insurance companies.

4. Cansen Ergun mentioned that InsurTech is a very new phenomenon in Turkey and many insurance companies don’t know much about InsurTech. Therefore, there should be reports, trainings, and conferences explaining the benefits of collaborating and engaging with InsurTech startups.

InsurTech Opportunities

The insurance and InsurTech market in Turkey is promising and can offer many opportunities for innovative startups:

1. The low insurance penetration suggests that the market is still untapped and has a huge potential to grow. According to the CEO of Zurich Insurance Group Turkey, Yilmaz Yildiz, the industry has been attractive to foreign investors (e.g. Lloyd’s of London’s interest in entering the Turkish market⁹) as average total premiums constitute only 1.5% of GDP, and, compared to EU averages, Turkey’s US$30 billion insurance sector can increase fivefold to US$150 billion.¹⁰
2. Located between Europe and Asia, Turkey offers significant opportunities for incumbents and investors. It is a dynamic country with 80 million inhabitants and its large tech-savvy young population is open to adopting new technologies to meet their financial needs, including insurance.
3. Most global insurers, such as Allianz and Aviva, already have operations in Turkey and can contribute to the development of InsurTech startups by either collaborating with them or investing in them. This could improve the InsurTech ecosystem as there will be more startups entering the space and raising investment.

4. Recently, some incumbents have realized the opportunities in this underpenetrated market and have been driving innovation to meet growing demand. PwC Turkey Insurance Industry Leader, Talar Gul, stated that new technologies are on the agenda of insurers and they have been investing in innovative solutions improving the quality of their infrastructure.¹¹

   Sharing his observations on the trends affecting insurance providers, Erdal Guner observed:

   Digital and InsurTech are hot topics for insurance companies in Turkey. They are interested in learning and understanding new technologies that can transform and improve the way they do business: They are talking about the successful InsurTech start-ups around the world and having multiple projects on how to use technology to improve efficiency (such as using chatbots in operations).

   Cansen Ergun stated that digital transformation has been effective in multiple areas, such as products (development efforts mostly in connected services like telematics, connected health, etc.); distribution channels (utilizing apps and social domains, developing digital channels engaging with customers more often, directly, and quickly); and operations (including robotics process automation, claim submission through digital platforms, aggregators, etc.).

5. Erdal Guner thinks that there are opportunities for startups in the Internet of Things (IoT) space, such as connected health, connected cars, or connected homes. However, their innovative solutions need to be different from the existing insurance-only offerings; they should bring added value to Turkish customers and include an insurance policy, assistant services, and other valuable services in their model.

Conclusion: Unlocking the Potential

There is a high and untapped potential in the Turkish insurance and InsurTech market. The growing young and digital/tech-savvy population requires sophisticated financial products and services meeting their needs and expectations well. We can expect that, in the near future, the digital transformation of the Turkish insurance industry will be triggered, insurance and the InsurTech market will boom and start to grow quickly, and more insurance products will be sold via traditional and digital channels.