John Nelson also expressed condolences over the deadly terror attack in Ankara which killed at least 28, on Feb. 17, speaking to DHA following his opening speech at the Turkey-UK financial cooperation meeting held in Istanbul the next day.
“I think any major city in the world today is clearly vulnerable to both natural risks particularly in Turkey through natural catastrophes, earthquakes and man-made risks including the dreadful attack in Ankara” he urged.
Nelson counted cyber-attack and market crash among other man-made risks threating Turkey along with many other growing economies.
Lloyd's is known as a “specialist insurance and reinsurance market” leading across the world.
Turkey's penetration six times lower than developed countries
A recent City Risk Index released by Lloyd's showed that 83 billion dollars of Turkey's GDP will be at risk in the next ten years, due to its low penetration.
“Turkey's insurance penetration marks only 1.3 percent and the country should improve its infrastructure, particularly against the risk of earthquakes” said the Lloyd report, which has ranked 300 major cities across the world.
Having spoken to DHA, John Nelson said that the low penetration stemmed from Turkey's economic growth level. Therefore, the rate is not unusual.
Due to its strong economic growth, the country faces “high class problems and greater risks” he explained. “Equally, as countries urbanize, they create a great concentration of risks, as in the case of Turkey including eight major cities” Nelson said.
“As the world develops, we are creating greater financial risk” he added.
According to Lloyd's of London Chairman, “what is important for the Turkish economy is that risk of underinsurance is recognized and addressed”.
“If we look at insurance premiums as a proportion of GDP in Turkey, it is 1.3 percent. In most developed countries, penetration is around 6.2 percent. Therefore, it is six times that number. There is a gap that needs to be bridged in a long time” stressed John Nelson.
Accordingly, he suggested that increasing insurance would “improve the growth, resilience and sustainability of economy”.
But why is insurance penetration low in Turkey?
According to John Nelson, "it is not unusual in an economy growing very fast". However, “In China and Brazil with similar patterns, penetration is growing” he urged.
“In Turkey, there is a recognition that penetration should increase in the business community and the government. There is also a cultural issue; the concept of insurance looks like an expensive luxury to individuals” he added.
“It is a process of education. As income rises, prosperity rises and people understand more the importance of insurance” Nelson said.
“Fatalism versus mitigating risks”
“Fatalistic” attitudes to risks are also at the heart of penetration debates. Turkey is listed amongst countries where catastrophes such as earthquakes “can be undermined”.
“Some of countries prone to natural catastrophes, for instance Chili and New Zeeland which were hit by earthquakes, are well insured for catastrophes. Significant fund has been pumped into New Zeeland economy from outside and this allowed quicker recovery of the infrastructure. It also allowed the economy to continue to grow” said Nelson.
However, Turkey is found to be uninsured, according to its low penetration rate amongst some 17 countries with deficient insurance coverage.
“Pakistan, Haiti were uninsured and they have not recovered after earthquakes” he said, adding that as an alternative to fatalism, risks can be rather mitigated.
Lloyd's operating in 200 companies, with 40 percent of scope in the United States, seeks to grow markets in South America, Asia, especially China. Another important economy is Turkey, according to Lloyd's chief.
“We believe we would stimulate a more active domestic market here in Turkey” he said.