Turkey’s current economic growth presents domestic insurers with both opportunities and challenges. According to figures from the Turkish Contractors Association (TCA), in 2010 and 2011 Turkey’s gross domestic product (GDP) grew by 9.2% and 8.5% respectively.
Despite its growth slowing in recent years, Turkey’s current rate of economic development suggests a bright future ahead for the country.
Domestic insurers must take advantage of this growth by promoting the use of more specific insurance covers for the new assets it is creating. While they cruise slowly but surely towards increasing insurance penetration in the country, Turkish insurers must also adapt and become more responsive to new types of risks that they consider ‘unusual’ in terms of sophistication or size.
One of the main drivers underpinning Turkey’s growth is its construction industry. During 2010 and 2011 the construction industry in Turkey grew by 18.3% and 11.3% respectively, according to TCA figures. This is being driven by a combination of significant government investment and regional projects in the Middle East, North Africa, Russia and CIS Countries. To put this in perspective, Turkish contractors are now second only to Chinese contractors in terms of number projects won globally.
While the construction industry continues to broaden its geographical footprint abroad, the Turkish government’s use of Project Financing means that projects that once would have been in the realm of fantasy are now becoming a reality.
Project Financing, or Public Private Partnership (PPP), is a mechanism where the private sector provides finance to construction projects, runs them to gain a return, and then hands them back to the government at an agreed point.
These have provided the Turkish government with access to significant amounts of capital, and it is now not unusual for project values to range between $500 million and $1 billion. As well as being high value, projects are becoming more specialised.
This has left Turkey’s insurers playing a game of catch up. While the industry is astute at covering traditional risks, it has not yet become attuned to covering more specific complex risks that the country’s recent economic boom is creating. This is where reinsurers with global expertise can offer assistance and support in creating appropriate programmes to cover more complicated risks.
Time to work together
Faber Global recently brokered coverage for the construction of the Istanbul / Izmir motorway: one of the largest construction projects in the world. Our Global Construction Team was able to help the project’s insurers navigate complex risks and match them with appropriate reinsurance cover.
Through working in partnership with reinsurers, Turkey’s insurers are presented with the opportunity to increase their knowledge of complex risks while capitalising on an economic boom which many of their peers in mainland Europe, which is enjoying little growth, would be envious of.