UFUK UL - Economist, MBA in Business Administration - In insurance sector from Motor Group Manager in HDI Sigorta

-LAST 10 YEARS TRAFFIC ACCIDENT STATISTICS OF TURKEY -% OF VEHICLE OWNERS INSURED BY AN MTPL (*) POLICY -LAST 5 YEARS MTPL TECHNICAL RESULTS -BODILY AND MATERIAL MTPL CLAIMS DEVELOPMENT OF TURKISH MARKET -MAIN DIFFICULTIES IN BODILY INJURY CLAIMS -AVERAGE MTPL PREMIUM (TL) DEVELOPMENT OF MARKET -INDEMNITY AMOUNT CHANGES IN BODILY INJURY CLAIMS ; COURT CASES VS. DIRECT APPLICATIONS -PRICING OF TOTAL MTPL AND ITS BODILY INJURY CLAIMS (*) MTPL = Motor Third Party Liability. IN THIS PREZENTATION :

LAST 10 YEARS TRAFFIC ACCIDENT STATISTICS OF TURKEY (*) (*) This report includes accident site statistics Years No of No of Injuries VehiclesAccidentsDeaths

ROAD ACCIDENTS FREQUENCY

NO OF DEATHS PER 1000 ACCIDENT (IN ACCIDENT SITE)

NO OF INJURIES PER 1000 ACCIDENT (IN ACCIDENT SITE)

% DISTRIBUTION OF ACCIDENT RESULTS (2012 ACCIDENTS)

% OF VEHICLE OWNERS INSURED BY AN MTPL POLICY (2012 DECEMBER EVALUATION) UNINSURANCE (%) : CARS8% PICKUP TRUCK12% TRACTOR58% MOTORCYCLES64%

LAST 5 YEARS MTPL TECHNICAL RESULTS : (Mio TL) Premium (Mio TL) Technical Profit (Mio TL) Technical Profit (%) Loss ratio (%) %110% %92% %105% %92% 2012 (End of Sep.) %108%

LAST 3 YEARS MTPL CLAIMS DEVELOPMENT OF TURKISH MARKET (*) MATERIAL CLAIMS : YEARSPOLICY NUMBERSNO OF CLAIMSFREQUENCY ,10% ,74% ,84% BODILY INJURY CLAIMS (**) : YEARSPOLICY NUMBERSNO OF CLAIMSFREQUENCY AV. CLAIMS INCURREDAV. CLAIMS PAID ,13% ,27% ,21% (*) SOURCE : INSURANCE ASSOCIATION OF TURKEY (**) BODILY INJURY CLAIMS INCLUDE ONLY DEATH AND PERMANENT DISABILITY CLAIMS. BECAUSE CURRENTLY ; 10 % OF MTPL PREMIUM IS CEDED TO SOCIAL SECURITY INSTITUTION FOR TREATMENT RESPONSIBILITY

MAIN DIFFICULTIES IN BODILY INJURY CLAIMS Rightful parties of bodily injury sometimes learn their right after years. That period creates difficulties to calculate ultimate loss amount. Some of rightful parties directly go to the court without applying insurance company for indemnity. This brings a signicant increase on indemnity. Increasing number of lawyers and companies have been dealing with bodily injury claims. They find rightful parties and present an offer to follow their claim with a fee. They go either the insurance company directly or the court to get the indemnity Their is no one definite actuarial way of calculation of bodily injury indemnity. Court actuaries and other actuaries can calculate different indemnities. For this reason, a high percentage of rightful parties, who have already got their indemnity from insurance companies, also apply for a court to get additional indemnity. They are generally leaded by the above mentioned lawyers and companies. So we need one definite and agreed way of actuarial indemnity calculation for bodily damages. Excessive competition in the MTPL market prevented price increases in many years. For this reason companies were subjected to chronic technical losses. At last, market began to react to this negative trend as increasing their MTPL prices in the second half of 2012.

AVERAGE MTPL PREMIUM (TL) DEVELOPMENT OF MARKET FROM JANUARY 2011 TO JANUARY 2013

INDEMNITY AMOUNT CHANGES IN BODILY INJURY CLAIMS COURT CASES VS. DIRECT APPLICATIONS AN EXAMPLE : In this example, we will compare direct application of a bodily claim with a court application. A rightful party applied for a bodily damage to an insurance company and got TL as an indemnity. What would have been the indemnity if he had gone to a court ? TodayOne year laterTwo years later Indemnity amount45.000, , ,00 İntrest (from ) 1.176, , ,95 legal expenses17.950, , ,91 Total Indemnity , , ,86 When a court case opens it brings legal expenses such as lawyer fee, court charge etc. Also interest will be calculated for the period. Moreover if court decides after two years, new actuarial calculation is done with the current minimum wage (minimum wage is increasing 10 to 11 % yearly) So after two years indemnity amount becomes TL 89,378, which is double of the first calculated figure TL Therefore direct applications bring significantly less cost to insurance companies. Companies should try to find solutions to legal applications.

PRICING OF TOTAL MTPL AND ITS BODILY INJURY CLAIMS MTPL pricing shoud begin with a correct reserving. IBNR + IBNER calculations should be added to claims. Also claims inflation of data studied and future inflation expectations should be considered Multivariate analysis of vehicle types and different segments in them shoud be examined and decided. Over average bodily claim creating segments should be priced adequately and securely. For example : Worst bodily damage creating cities of Turkey have 2,1 % of total policies and 6,1 % of bodily claims (as numbers) That kind of groups should be priced accordingly. During pricing unexpected future developments security margin should be considered. Such as high court decisions, legal authority practice changes and other unexpected developments.

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