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

With a majority of the population living in these earthquake-prone areas, the persistent potential for large-scale natural disasters has become a fiscal and social issue for the Turkish government. This issue led to the establishment of the Turkish Catastrophe Insurance Pool (TCIP) in 1999.

Since the program began, insurance penetration for catastrophe coverage has more than tripled. Providing coverage to approximately 2 million Turkish homeowners (16 percent of the insurable housing stock), TCIP is now the largest insurance program in the country.

In only five years, the program built approximately $200 million in its own reserves and secured nearly $1 billion in total claims-paying capacity, primarily from the international reinsurance market on competitive terms. In addition, since its first reinsurance placement, and despite a hardening reinsurance market, the program achieved a 35 percent reduction in its reinsurance rates by the 2005 underwriting year.

The program has reduced significantly the government's fiscal exposure to EQ risk. In the wake of several small and medium-scale earthquakes over the last few years, the TCIP demonstrated its ability to pay claims quickly and fairly. It has promptly settled 6,000 claims amounting to $6 million. Because of its low cost structure and well-managed reinsurance costs, the TCIP can provide EQ insurance coverage with a limit up to $50,000 at an average annual premium of $46. This price makes catastrophe insurance affordable for low-income urban homeowners.