In an effort to reform the unprofitable mandatory motor vehicle third-party insurance ("MTPL Insurance") sector, Turkish policymakers are expected to adopt measures, such as standardized compensation calculation methods and authorization of the Treasury to set the rules for compensation payable under MTPL insurance claims. MTPL Insurance generates significant losses for non‑life insurers operating in Turkey, amounting to TRY 2.3 billion (~USD 0.8 billion) as of year-end 2015 and a total of TRY 7 billion (~USD 2.4 billion) in the last decade.

Background

The Turkish Treasury enacted new general conditions for MTPL Insurance on June 1, 2015 and policymakers are planning to adopt new rules to increase the MTPL Insurance sector's profitability. So far, insurers' problems persist mainly due to (i) inconsistent judicial decisions from different interpretations of the piecemeal legislation, and (ii) a lack of standards in the calculation methodology to determine compensation claims, resulting continuous litigation by injured parties seeking greater compensation.

To prevent increased losses, the Treasury has allowed insurers to set their own premiums since 2013. Due to the significant increase in insurance premiums, on October 27, 2015, the Treasury set a ceiling for MTPL Insurance premiums for operators of commercial vehicles, such as trucks, buses and taxis. 

What the policymakers plan

Turkish policymakers, including the legislators and the Treasury, are reported to be working on new rules for MTPL Insurance:

  • On February 2, 2016, the MTPL Insurance General Conditions were retroactively amended to allow insurers recourse against drivers at gross fault or the successors of drivers at fault, which was previously limited to (i) driving under influence, (ii) driving without a valid driver's license, and (iii) lack of licenses for public transportation or hazardous material transportation or overcapacity. Although the MTPL Insurance General Conditions have been amended, new statutory provisions complying with these amendments will be adopted to harmonize inconsistent court decisions.  
  • A new standardized method will be adopted for the calculation of compensation. Currently, the Treasury has approved a method that considers the person's age, occupation and their dependents. Insurers are willing to make their payments to injured parties in accordance with the Treasury-approved standards; however, courts take into account the calculations of expert witnesses instead of relying on this table, resulting in increased compensation and statutory provisions being set aside by insurers.  
  • On March 16, 2016, the Vehicle Spare Parts and Service Certification Center was established to set the eligibility standards of service providers for vehicle repairs. Service providers satisfying the eligibility requirements will be given an eligibility certificate for a three-year period. This is intended to increase the quality of repair services.  
  • A labeling regime will be adopted for spare parts which will allow certified spare parts to be tracked so that insurers can monitor repair processes and spare parts. Insurers state that this new system will allow the use of certified "equivalent" spare parts instead of original parts, resulting in spare parts costs decreasing by 17%.  
  • The Treasury also plans to balance insurers' mandatory share in the MTPL Insurance market, i.e., it will not be possible for an insurer to have a market share in the MTPL Insurance market below its overall market share.  
  • A voluntary direct reimbursement system is planned allowing injured parties to make insurance claims against their own insurer as opposed to the other party's insurer. Insurers will then settle any balances between themselves.  
  • The Treasury, however, is reluctant to limit injured parties' right to sue insurers directly.

Conclusion

With the MTPL Insurance reform, insurers will have recourse against drivers at fault (and their successors) through harmonized rules and a standardized approach for calculating compensation. This is expected to reduce insurers' losses from MTPL Insurance policies and help control the rising cost of MTPL premiums. In addition, repair service providers and spare parts sales will be streamlined through supervision and certification processes. The Treasury is trying to strike a balance between the requests of insurers and customer rights in the MTPL Insurance sector and has rejected some policies that could have contributed to reducing MTPL Insurance premiums but, at the same time, would have negatively affected insurance coverage. Policymakers will ultimately determine the balance to be struck between insurers and insureds.