Earthquake in Turkey: impact on insurance
Since the earthquake of 17 August 1999, which affected the regions of Izmit and Istanbul, earthquake coverage has become mandatory in Turkey. This risk is managed by the Turkish Catastrophe Insurance Pool (TCIP) which has established a compulsory coverage that individuals can supplement by underwriting additional covers with local insurance companies. Consequently, it is the TCIP pool that is in the front line when it comes to earthquakes.
Due to the location of the 6 February 2023 disaster, the rate of mandatory earthquake coverage in the affected region is lower than the national average set at approximately 55%.
The first estimates of the disaster indicate that the insured losses do not exceed 1 billion USD. This figure has been quickly revised upwards by the modeling firms CoreLogic, Karen Clark & Co and Moody’s RMS, which forecast a bill ranging between 2.4 and 5 billion USD to be borne by insurers. PERILS AG estimates the insured losses at 3.5 billion USD.
The TCIP pool, which had a capacity of 46 billion TRY (4 billion USD) at the end of 2021, is expected to bear the bulk of the damages. According to Fitch Ratings, the pool has benefited from an additional capacity of 2 billion USD at the January 2023 renewals.
The vast majority of the insured losses will therefore be absorbed by the TCIP pool and its main reinsurers, including Munich Re and Swiss Re, which are participating in its program.
The rest of the losses will be distributed among local insurers and the foreign subsidiaries of insurance groups such as Allianz, AXA, Talanx, Mapfre and Sompo Holdings. The latter, already affected by high inflation and the lack of profitability of local insurance, will have to deal with the increase in claims in the fire and natural catastrophes class of business.
Insurers were particularly affected by building damage (residential, commercial, industrial risks) and business interruption losses. Infrastructures, airports, ports and public buildings were also affected by the loss.
