History of the Turkish Catastrophe Insurance Pool

136 Pages·2007·2.78 MB·English

by  World Bank Group

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Earthquake Insurance in Turkey
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History of the Turkish Catastrophe Insurance Pool
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Earthquake Insurance
in Turkey

Earthquake Insurance
in Turkey
History of the Turkish
Catastrophe Insurance Pool
Eugene Gurenko
Rodney Lester
Olivier Mahul
Serap Oguz Gonulal
©2006 The International Bank for Reconstruction and Development / The World Bank
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Washington DC 20433
Telephone: [phone]
Internet: www.worldbank.org
E-mail: [email protected]
All rights reserved
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ISBN-10: 0-8213-6583-5
ISBN-13: 978-0-8213-6583-0
eISBN: 0-8213-6584-3
DOI: 10.1596/978-0-8213-6583-0
Library of Congress Cataloging-in-Publication Data
Earthquake insurance in Turkey : history of the Turkish Catastrophe Pool /
Eugene N. Gurenko ... [et al.].
p. cm.
Includes bibliographical references and index.
ISBN-13: 978-0-8213-6583-0
ISBN-10: 0-8213-6583-5
1. Insurance, Earthquake—Turkey. 2. Insurance pools—Turkey. I. Gurenko,
Eugene.
HG9981.4.T9E37 2006
368.1'22600956–dc22
2006041751
Cover photo: Peter I. Yanev
Contents
Acknowledgments ix
Introduction xi
Abbreviations xv
1. The Making of the Turkish Catastrophe Insurance Pool:
Risk Reality and Risk Perception 1
Turkey’s Exposure to Earthquakes 1
Role of the Government 6
Role of the World Bank 9
Turkish Public Relations and Communications Campaign 11
Turkish Insurance Industry 12
Marmara Earthquake 15
Marmara Earthquake Emergency Reconstruction Project 17
2. Objectives and Design:
Political Economy and Technical Imperatives 21
Enabling Legal Framework 23
Institutional Structure 24
Earthquake Insurance Coverage Terms and Conditions 31
Risk Financing Strategy 36
3. Operational Logistics and Corporate Financial Framework:
Key Challenges 43
Economic Environment and the 2001 Financial Crisis 43
vi Contents
Legal Framework 44
Corporate Governance 46
Insurance Operations 50
Consumer Demand for Earthquake Insurance 68
4. Future Challenges: Threats and Opportunities 75
Insurance Penetration 75
Risk Management Challenges 80
Potential Ways Forward 82
Appendixes
1. English Translation of Governmental Decree Law No. 587 on
Compulsory Earthquake Insurance as Published in Official
Gazette No. 23919 (December 27, 1999) 87
2. International Experience with Catastrophe Funds 97
Bibliography 109
Index 113
Boxes
1.1 Source of Seismicity in Turkey 2
1.2 Supply- and Demand-Side Failures of Private Disaster Insurance
Markets 7
2.1 Setting TCIP Premium Rates 33
2.2 TCIP Reinsurance Tender 39
3.1 Responsibilities of the TCIP Board 49
A2.1 California Earthquake Authority 100
A2.2 New Zealand Earthquake Commission 102
Figures
1.1 Comparison of Aggregate Vulnerability Curves for Residential
Buildings and Commercial Constructions in Turkey and Highly
Developed Economies 4
1.2 World Bank Disaster-Related Lending, 1980–2002 11
1.3 World Bank Emergency Lending, 1980–2002 11
Contents vii
1.4 Framework of the MEER Emergency Response Loan 19
2.1 TCIP Organizational Structure 25
2.2 Reinsured Fire Premium, 2000–3 26
2.3 Reinsurance Pricing Volatility 28
2.4 Earthquake Hazard Map of Turkey 34
2.5 Average Individual TCIP Insurance Premium 35
2.6 TCIP Premium Rates for Construction Types A, B, and C,
2000–4 37
2.7 TCIP Portfolio Loss Exceedance Curve 38
3.1 TCIP Marketing Process 54
3.2 Percent of Annual Reinsurance Agreements under the TCIP,
Nov. 1–Oct. 31, 2001–5 65
3.3 The TCIP’s Current Information Technology System 68
4.1 TCIP Insurance Penetration in Rural Areas, 2001–5 79
Tables
1.1 Significant Seismic Activity during the Twentieth Century 3
1.2 Economic Direct Loss Potentials 6
1.3 World Bank Emergency Reconstruction Lending in Turkey,
1992–9 10
1.4 Nonlife Insurance Penetration in Turkey and Selected Countries,
2004 13
1.5 Selected Economic Indicators for the Marmara Earthquake
Region 16
1.6 Macroeconomic Costs of the Marmara Earthquake 17
2.1 Realized Rates on Line (ROL), Nov. 1–Oct. 30 28
2.2 World Bank Contingent Facility 29
2.3 Sum Insured (as of January 1, 2005) 32
2.4 Compulsory Earthquake Insurance Premium Rates 33
2.5 TCIP Total Claims-Paying Capacity in Millions of Dollars,
2001–5 39
3.1 Distribution of TCIP Portfolio by Region 55
3.2 Regional TCIP Insurance Penetration since the TCIP’s
Inception 56
viii Contents
3.3 TCIP Statement of Income, as of October 28, 2004 61
3.4 TCIP Balance Sheet since the Pool’s Inception, 2000–4 62
3.5 Advertising Campaign and TCIP Participation, 2000–5 73
A2.1 Government-Sponsored Catastrophe Insurance Programs 99
A2.2 Catastrophe Program Design Variables 103
A2.3 Insurance Vehicles 104
A2.4 Rates Charged and Mitigation Incentives 106