Compulsory Earthquake Insurance—What Lessons We Have Learned from Türkiye So Far?

DBRS Morningstar published a commentary analyzing the compulsory earthquake insurance scheme in Türkiye and the takeaways for the insurance industry.
Key highlights include the following:

• TCIP transfers a large part of the risk to private sector and international markets while increasing the issuance of earthquake insurance policies.

• The recent devastating earthquakes in February show that earthquake coverage rates are still not high enough in risk-prone regions.

• Carefully designed mandatory purchase programs supported by effective surveillance of policy renewals and building codes could benefit the insurance industry.

“In our view, the TCIP example so far demonstrates an improvement in private insurance coverage for residential properties in Türkiye, especially in the Marmara Region since the 1999 earthquakes. Considering the main challenges pointed out in the Turkish market, we believe that establishing effective surveillance mechanisms to monitor policy renewals might further ameliorate the coverage rates in low-penetration areas.” said Marcos Alvarez, Global Head of Insurance. Sena Ozyapi, Analyst, Insurance, added, “We also consider that mandatory purchase programs stimulate higher take-up rates across regions with lower risk exposures to seismic activity, which would enable insurers to diversify the risk and reduce the adverse selection problem.”