Turkey GÜN + PARTNERS Pelin Baysal and Bensu Aydin pelin.baysal@gun.av.tr; bensu.aydin@gun.av.tr 1. Insurance intermediation activities 1.1 Is the distribution of insurance products (hereinafter referred to as insurance intermediation activities or insurance intermediation ) limited to insurance intermediaries in your country? Yes, only those who can operate as an insurance intermediary can distribute insurance products. Article 2 of the Insurance Law No. 5684 (the Insurance Law ), rather than generally stipulating a definition of insurance intermediation, refers specifically to agencies and brokers. In addition, banks and financial institutions which will be explained below and those entities that are specifically authorised by specific laws can also act as agents. Other than these, regular companies which are not considered as an intermediary cannot engage with the distribution of insurance products. 1.2 What does the term insurance intermediation include? Is there any definition set forth by statutory or case law? In any case, please indicate which activities/services are included in the above definition, for example, presentation or proposal of insurance products, assistance or consultancy aimed at drafting the agreement. Are collaboration activities that relate to the administration or execution of the contracts drafted, even in the case of accidents, included in the definition? Does the drafting of contracts or insurance agreements in collective form on behalf of insured individuals also form part of insurance intermediation activities? The term insurance intermediation includes insurance agencies and brokers under Article 2 of the Insurance Law. An insurance agent is defined under the same article as a person intermediating and/or executing insurance contracts in the name and account of the insurers for a permanent term within a specific place or region based on a contract without holding a title such as commercial representative, commercial attorney, sales official or employee, carrying out the preparatory works before the conclusion of the contract and assisting during the implementation of the contract and payment of compensation. A broker is defined under the same article as a person intermediating the parties who want to conclude an insurance or reinsurance contract in an impartial and independent way in the selection of companies with which such contracts are to be made, observing the rights and benefits of the people who want to purchase coverage and assisting, if necessary, during the implementation of the contract or payment of claims. As provided by the definitions, the agency may have the right to execute insurance contracts on behalf of the insurer, whereas brokers are impartial and do not possess such a right and are even prohibited from preparing insurance contracts. 1.3 Are insurance intermediation activities allowed as ancillary activities to other professional activities (eg, travel or rent-a-car services, etc) and to what extent? Furthermore, are there exceptions that allow actors, other than insurance intermediaries, to carry out insurance intermediation activities? Is it a matter 1
related, for example, to the risk covered, the duration or the cost of the policy premium, etc? Under Article 23 of the Insurance Law it is stipulated that insurance agents other than banks and establishments which are incorporated by a special law and authorised in order to carry out agency activities, shall not engage in commercial activities other than intermediating individual pensions and other intermediation activities approved by the Undersecretariat of Treasury (the Undersecretariat ). 2. Insurance intermediaries requirements 2.1 In order to act as an insurance intermediary, is there need for an authorisation and/or to be enrolled in a register? If yes, what are the requirements to be authorised/enrolled in the register as an insurance intermediary (individual or legal entities, integrity and/or professional requirements, etc)? Briefly explain how it works. As per Article 10 of the Regulation on Insurance Agencies published on the Official Gazette dated 14 April 2008 and numbered 26847 (the Regulation on Insurance Agencies ), insurance agencies shall first obtain a certificate of conformity from the Undersecretariat, which would enable the agency to be registered with the Register of the Union of Chambers and Commodity Exchanges of Turkey ( TOBB ). Under Article 4 of the Regulation on Insurance Agencies, for a real person to act as an agency, he should satisfy the following conditions: a) he should be qualified as a technical personnel under the aforementioned regulation; b) he should reside in Turkey; c) he should not be convicted of various offences, for example, the financing of terror and money laundering; d) he should qualify with the capital requirements (minimum of TRY 50,000, approximately 17,000 as of June 2015), should have the necessary infrastructure in terms of human capital and facilities and should qualify with the educational and practical background requirements. Under Article 4 of the Regulation on Insurance Agencies, for a legal entity to act as an agency, it should satisfy the following conditions: a) its head office should be in Turkey; b) it should be a joint stock or a limited liability company; c) it should have the necessary infrastructure in terms of human capital and facilities; d) it shall employ at least one technical personnel member; e) its managers and partners should meet certain requirements set forth in the legislation; f) its minimum share capital must be TRY 300,000 (approximately 100,000 as of June 2015) for its headquarters and its minimum share capital for its braches must be TRY 25,000 (approximately 8,000 as of June 2015). 2
It should be noted that in respect of banks and establishments which have been incorporated by a special law and authorised to carry out insurance agency activities, the obligations with regards to registration and certificate of conformity shall not apply. On the other hand, brokerage is performed with a broker licence obtained from the Undersecretariat. A broker licence is divided into insurance branches: life, non-life and reinsurance. The prerequisites for being a real person or legal entity broker are similar to those listed above for agencies. However, the capital of a legal entity broker must be minimum TRY 250,000 and for each additional insurance branch an extra of TRY 50,000 must be present in its capital. 2.2 In what form can anyone access and verify the registration/authorisation or verify the fact that the insurance intermediary is a professional (eg, via the web)? As per Article 8 of the Regulation on Brokerage, brokers that have been granted with a brokerage licence are announced on the website of the Undersecretariat. Regarding the agencies, TOBB s website lists the agencies recorded within the Register so that their professional activities can be verified (www.tobb.org.tr/sigortacilikmudurlugu/sigortaacenteleri/sayfalar/levhaya-kayitli-acente-sorgu- Sayfasi.php). 2.3 Are insurance intermediaries with a registered office in another country allowed to operate in your country and how (eg, under the right of establishment or freedom to provide services in your country, as in the EU)? If yes, under which conditions? In such a case, are they bound by the same obligations as the insurance intermediaries with a registered office in your country? Please describe. Under Article 23(11) of the Insurance Law, the Council of Ministers is authorised to make arrangements relating to the activities of foreign insurance agents in Turkey and the intermediation activities in Turkey by Turkish agents on behalf of foreign insurance companies. According to the Council of Ministers decision 2007/12467, foreign insurance agencies active in Turkey are subject to the same provisions with the domestic insurance agencies. A foreign realperson agency, to be active in Turkey, needs to reside in Turkey, while a legal entity foreign insurance agency needs to establish a branch in Turkey. Foreign insurance agencies shall only act on behalf and on the account of the insurers in Turkey; in other words, they shall not act as intermediaries for insurers abroad. Foreign real person or legal entity brokers must bear the qualifications and requirements which apply to Turkish brokers (see 2.1). Foreign legal entity brokers can only engage in brokerage activities in Turkey by means of establishing branches. 3. Different types of insurance intermediaries 3.1 Please list the different types of insurance intermediaries acting in your country such as agents, brokers, banks, financial intermediaries or financial advisers. The different types of insurance intermediaries acting in Turkey are agents, brokers banks (deposit banks, participation banks, developments banks and investment banks), financial institutions, including financial leasing, factoring and financing companies and establishments which are incorporated by a special law and authorised in order to carry out agency activities, for example, agricultural cooperative credit associations, chambers of agriculture and the Post-office Joint-Stock Company (Posta ve Telgraf Teşkilatı Anonim Şirketi ( PTT ). 3
3.2 Do insurance intermediaries need to enter into a written contract with the insurers (or receive a mandate from the insurers)? Under Article 14 of the Regulation on Insurance Agencies, the authority to act as an agency is granted with a special proxy by the insurance companies. This authority granted cannot be transferred to other agencies or persons. The proxy specifies the insurance branches in which the authorised insurance agency will be active and the authorities within the scope of these designated insurance branches. This proxy must also be registered to the trade registry. Moreover, under Article 15 of the aforementioned regulation, the scope of the authorities of the agency in terms of insurance branches and geographical limitations, among other issues, are determined by means of the agency agreement to be executed between the agency and the insurance company. With regards to brokers, the party to be represented by the broker must grant a certificate of authority to the broker in order for the broker to carry out preparatory work before the conclusion of the insurance contract and implementation of the same. This certificate of authority must include the scope, limit and term of the authorisation and this certificate cannot be transferred to third parties. If the broker represents an insurance company, the particulars of this relationship can be designated with a protocol between the broker and the insurance company. However, unlike agencies, brokers cannot undertake to generate a clientele for the insurance company. 3.3 Can an insurance intermediary enter into a contract with the insurers (or receive a mandate from the insurer) and in turn enter into one or more agreements with other insurance intermediaries (the so-called horizontal distribution)? Turkish legislation remains silent with regards to horizontal distribution of insurance products; therefore, entering into second agreement with another intermediary might be possible if explicitly stipulated in the proxy (for agencies) or certificate of authority (for brokers). 3.4 The insurance intermediaries more in detail: 3.4.1 The agent 3.4.1.1 Does the role of insurance agent exist in your country? If yes, describe the agent s functions. Please refer to the definition of the insurance agencies in 1.2. 3.4.1.2 In particular, does an agent act on behalf of the insurer or the insured? Who pays the agent s remuneration? To what kind of remuneration is the agent entitled? The agent acts on behalf of the insurer. The authority to act as an agency is granted with a special proxy. The scope of the authorities of the agency in terms of insurance branches and geographical limitations, among other issues, are determined by means of the agency agreement to be executed between the agency and the insurance company. The remuneration, which is based on commission system, is also set out in this agency agreement. The principle rule is that only insurance companies have the authority to execute an insurance agreement and/or to collect premiums. However, these authorities can also be granted to the insurance agencies provided that it is explicitly stipulated under the proxy to be granted by the 4
insurance company. Those agencies that have not been authorised to collect premiums cannot engage in such activities. In addition, any payment made to the agencies is deemed to have been made to the insurance companies. 3.4.1.3 If an agent acts on behalf of the insurer, describe the type of work relationship with the insurer (eg, subordinate, para-subordinate or freelance, self-employed etc). Does the principal-agent model exist, that is, is one appointed by the insurer to manage a particular branch or subsidiary? The Insurance Law refers to the Turkish Commercial Code No. 6102 (the TCC ) regarding insurance agencies and the agent is defined under the TCC as follows: He/she who takes as a profession the permanent carrying out of negotiation activities (ie, intermediation activities) for contracts relating to a commercial enterprise or conclusion of such contracts on behalf of such commercial enterprise in a specific place or territory, without an ancillary role such as a commercial representative, sales officer or employee, shall be deemed to be an agent. In view of this definition, the main elements of an agency relationship are as follows: there must be an underlying agreement that constitutes the basis of the agent s appointment and its authorisations; the agent must negotiate and/or conclude contracts relating to a commercial entity; and the agent cannot act as an employee or representative of principal. In this respect, it can be concluded that agencies work in a principal-agent model. 3.4.1.4 What type of organisation does the agent have? Can he have staff working for him (eg, sub-agents)? As mentioned above, under Article 14 of the Regulation on Insurance Agencies, the authority to act as an agency is granted with a special proxy. This authority granted cannot be transferred to other agencies or persons. Therefore, the agent cannot have any subagents. However, inclusive of its operational structure, an agent can have employees and, indeed, it shall have technical personnel as referred to in 2.1. 3.4.1.5 Is the relationship between the insurer and the agent regulated by a collective bargaining agreement? If yes, what does it mainly cover? Can the relationship be exclusive to a particular area? Is the remuneration established by the collective bargaining agreement? Can the provisions be waived by the parties mutual agreement? As mentioned above, the scope of the authorities of the agency in terms of insurance branches and geographical limits, among other issues, are determined by means of the agency agreement to be executed between the agency and the insurance company. Therefore, the relationship can be exclusive to a particular area. There isn t any industrial union specific to insurance agencies and, therefore, there is not any collective bargaining agreement. The particulars of the agency agreement between the agent and the insurer company are based on the principle of freedom of contract. 5
3.4.1.6 Does the termination of the work relationship between the agent and insurer provide for the agent s obligation to return the portfolio of contracts? In such a case, would the agent be entitled to an indemnity? Both the agency and the insurer may terminate the agency agreement upon three months prior notice. The agency agreement could be terminated at any time if there is a just cause for termination. If a party terminates the agreement wrongfully or without three months prior notice, the terminating party shall indemnify the damages due to the completion of the uncompleted tasks. After the termination of the agreement, the agency could claim for the payment of a suitable compensation, provided that the insurer continues to gain significant benefits due to the new customers that the agency has found. This is because after the termination of the agreement, the agency loses its right to generate income from the clientele it has created or from the tasks to be fulfilled within a short period of time due to the termination of the agreement and this would be unfair. As confirmed by the precedents, an equitable amount of compensation is usually granted to agencies. Such compensation cannot be more than the average of the annual commission or any other payments that the agency has received for the last five years of activity. The claim for compensation shall be made within one year following the termination of the agreement. The agency cannot claim any compensation if the insurer has terminated the agency agreement due to a just reason. There is no specific legislation regulating whether the agent has an obligation to return the portfolio of contracts. However, the Regulation on Insurance Agencies specifically regulates that the insurance companies shall take necessary measures to ensure that the benefit of the insured whose insurance contract continue to be valid under the former portfolio of the agent. 3.4.2 The broker 3.4.2.1 Please describe the broker s services. In general terms, do the services consist of intermediation or are they similar to consultancy/advisory activities? Is the broker an independent actor? A broker is defined as a person who intermediates the parties who want to conclude an insurance or reinsurance contract, acts impartially and independently in the selection of companies with which such contracts are to be made, observes the rights and benefits of the people who want to purchase coverage and assists, if necessary, during the implementation of the contract or payment of claims. In light of the above, it is concluded that brokers are independent from insurers and they are in the nature of a consultant/adviser for the insured. 3.4.2.2 Who pays for the broker s remuneration (please specify case by case for the different services, if any)? Is the broker allowed to retrocede a portion of his remuneration to the insurer or to the insured? As an inevitable outcome of the independent and impartial nature of the brokerage activities, the brokers cannot attain any profit whatsoever except for the brokerage fees and the consultancy and risk management fees collected from the clients represented. 3.4.3 Banks, financial intermediaries, financial advisers and others allowed to act as insurance intermediaries 3.4.3.1 Can banks, financial intermediaries and/or financial advisers act as insurance intermediaries? 6
Under Article 4 of the Banking Law No. 5411 (the Banking Law ), banks can carry out insurance agency activities. As per non-bank financial institutions, including financial leasing, factoring and financing companies can only be engaged in the insurance of the properties subject to financial leasing, the securities within the scope of the financial leasing and the lessors. As per financing companies, they can be engaged in the insurance of properties or services, for the purchase of which the financing is in question, those real or legal persons purchasing the property or the services or with regard to the repayment of the loan and all other similar issues with regard to the loan. 3.4.3.2 Please define a financial intermediary. Are there particular requisites for the profession of financial intermediary? Does the financial intermediary have to be enrolled in another register (eg, a register of financial intermediaries)? Turkish law does not include a definition of financial intermediary within the context of insurance intermediary. However, there are other financial intermediaries within the context of capital markets, which is irrelevant to this questionnaire. In Turkish insurance system, financial intermediaries are considered as deposit banks, participation banks, developments banks and investment banks, and financial leasing, factoring and financing companies. Under the Banking Law, a financial institution is defined as a development bank, investment bank or financial holding company established to carry out insurance, pension and capital markets activities or at least one of the activities listed under the aforementioned law, except credit agencies. In order for a bank to be established in Turkey, provided that all the conditions set out under the aforementioned Law are met, at least five members of the Banking Regulation and Supervision Agency should vote affirmatively. Therefore, the establishment of such companies is subject to the permission of the Banking Regulation and Supervision Agency. Upon having the permission of establishment, an approval of activity should also be obtained and this permission shall be announced in the Official Gazette. Moreover, under Article 4 of the Law Regarding Financial Leasing, Factoring and Financing Companies, for a financial leasing, factoring and financing company to be established in Turkey, provided that all the conditions set under the aforementioned law are met, at least five members of the Banking Regulation and Supervision Agency should vote affirmatively. Upon having the permission of establishment, an approval of activity should also be obtained and this permission shall be announced in the Official Gazette. 3.4.3.3 Please define a financial adviser. Are there particular requisites for the profession of financial adviser? Does the financial adviser have to be enrolled in another register (eg, a register of financial advisers)? Turkish legislation does not include a definition of financial adviser within the context of insurance intermediary. 3.4.3.4 Can financial intermediaries and/or financial advisers distribute any insurance and/or financial products? If yes, under what conditions or with what limitations? As noted above, only financial leasing, factoring and financing companies can distribute insurance products; however, these can only be engaged in the insurance of those that are related to their scope of activity. 7
3.4.3.5 With reference to insurance intermediaries other than agents, brokers, banks, financial intermediaries and financial advisers, as indicated under question 2.1 above (if any), please describe what kind of products they can distribute and under what conditions. Other than brokers, banks, financial intermediaries and those entities which are incorporated by a special law and authorised in order to carry out agency activities (eg, agricultural cooperative credit associations, chambers of agriculture and the Post-office Joint-Stock Company (Posta ve Telgraf Teşkilatı Anonim Şirketi)) can distribute insurance products. Agricultural cooperative credit associations and chambers of agriculture provide insurance related to agriculture whereas the PTT can provide all kinds of insurance to its clients including mandatory traffic insurance, mandatory earthquake insurance and motor insurance. Other than the prerequisites of establishing and registering, they are subject to general rules of agency as listed above. 4. Rules of conduct and responsibilities 4.1 Are there rules of conduct that insurance intermediaries should comply with (eg, duties in relation to the obligation of utmost care, correctness, utmost good faith, information, adequacy, transparency, conflict of interests, filing of documentation, separate accounting or other accounting obligations)? Please describe the above duties, specifying if they apply to all types of insurance intermediaries (eg, agents, brokers, banks, financial intermediaries, financial advisers, etc) and whether the content differs with particular reference to responsibility according to the type of actor/activity and person (insurer or insured) receiving the activity. All intermediaries are prohibited from misleading the insured and pursuing unfair competition. Moreover, they shall refrain from actions that would hurt the benefits/rights of the insured, shall comply with all and any legislation, and shall abide to the principle of good faith and customs of insurance. There is no distinction with regards to the above when it comes to different types of intermediaries or according to the type of actor/activity and person (insurer or insured) receiving the intermediary service. There are also technical standards with which both brokers and agents must comply. These technical standards include the employment of technical personnel and the implementation of a technical system, etc. Note that both brokers and agencies (including financial intermediaries and entities which are incorporated by a special law and authorised in order to carry out agency activities) are required to have professional liability insurance. Other than the prerequisites of establishing and registering, entities which have been established by a special law and authorised to carry out insurance agency activities, financial intermediaries and banks are subject to the rules of agency explained above. 4.2 Does the insurance intermediary represent the insurer? By way of example, is the agent also the insurer s representative vis-à-vis the customer, and if so, does this also apply during trial before a court? Is there a matter of imputation of knowledge? What happens when a broker has information on matters relevant to the insurer s decision to insure which the broker fails to disclose to the insurer? Is the insured deemed to have breached its duty of disclosure in such circumstances? In which cases? Can the insurance intermediary be accountable for the contracts he executed on behalf of the insurer? As noted above, an agent is the representative of the insurer whereas a broker is independent from the insurer and acts for the benefit of the insured. In light of this information, it can be concluded that an agent is the representative of the insurer. However, the court decisions given in respect to the insurer shall not be directly applicable to the 8
agencies. Moreover, the premium payments made to the agencies are deemed to be made to the insurer. This rule also applies to those brokers that are specifically authorised by the insurer to receive payments from the insured. Further, if an agent executes an insurance contract without the authorisation of the insurer, the insurer may give its consent thereafter, otherwise, the agent will be solely liable. Brokers who are authorised to execute agreements on behalf of the insured are responsible for informing the insured about the particulars of the insurance contract. In this case, the information provided to the broker by the insurer shall be deemed as provided to the insured. 4.3 Is the insurer jointly liable for damages caused by the insurance intermediary, appointed by the same, when executing intermediary activities? Who is liable vis-à-vis the insured person? Is it always the intermediary or the insurer? It is stipulated in the legislation that brokers are jointly and severally responsible together with their technical personnel for any damages to their customers due to activities of the technical personnel. Agencies are liable for any and all damages that could be incurred by the insured due to their professional activities. 4.4 Are there particular regulations or specific forms of compensation for damages caused to the insured person? No, there isn t any other specific form of compensation. The insured shall claim monetary compensation for its damages. 5. Supervision and sanctions 5.1 Regardless of the requirement of an authorisation and/or enrolment, are insurance intermediaries subject to the control of supervisory bodies? Does the supervisory body have powers/duties of prudential supervision on the insurance intermediary s activities, and, if so, in what way does it act? The Undersecreteriat is the supervisory body of all kinds of insurance activities, including insurance intermediaries. The Undersecretariat is authorised to supervise, observe and control the intermediation activities of agencies under Article 28(8) of the Insurance Law. Overall, all insurance intermediaries are subject to the control and supervision of the Insurance Supervision Authority. The Insurance Supervision Authority is composed of a president, insurance supervision actuaries and their assistants. The Insurance Supervision Authority is responsible for carrying out the controlling, audit and supervision functions of the Undersecretariat. With regards to agencies, the Executive Board of Agencies, which reports to the Turkish Union of Chambers and Commodity Exchanges is also a sector-specific organisation in order to regulate the ethics of agencies. The Executive Board of Agencies has the power to impose disciplinary charges on those agencies which are not in compliant with business ethics. This organ has the power to remove and/or bar an agency from the Register. 5.2 Are there fines for violations of the insurance intermediaries obligations? If yes, please describe. Insurance intermediaries shall not design their brochures, explanatory notices, other documents and their advertisements and commercials in a way that results in an understanding outside the limits and scope of the rights and benefits which they shall provide to the insured, and shall not make statements that are unreal, misleading, deceiving or that give rise to unfair competition. Where violation of this provision is ascertained, the matter shall be referred to the Advertising 9
Board that acts upon the Law on Protection of Consumers. Also, under the same provision, insurance intermediaries are obliged to refrain from acts which may endanger the rights and benefits of the insured, to act in accordance with the legislation and principles of the business plan, and to behave in compliance with the requirements of insurance and the rules of goodwill. The Undersecretariat may suspend any agency, for six months, which is found to be noncompliant with Article 32 of the Insurance Law following a result of inspection or audit conducted by the Undersecretariat. In case of repeated breach within one year following temporary suspension, the activity of the agency is suspended by the Undersecretariat completely and their certificate of conformity is invalidated. As per the supervision of and sanctions placed on brokers under the Regulation on Insurance and Reassurance Brokerage, brokers are warned by the Undersecretariat in case they are in breach of legislation or they do not meet the conditions to act as a broker (explained under 2.1). Upon warning, if the breach continues, their licence can be cancelled for six months or it can be revoked. 5.3 Do sanctions also apply to foreign intermediaries who operate in your country? Yes, please refer to 1.5 above for the conditions of foreign agencies and brokers to be active as insurance intermediaries in Turkey. Foreign insurance intermediaries are not subject to different regulations under the Turkish insurance legislation. 5.4 Is there a consultation procedure with the insurance intermediary before the fine is applied? Before a fine is imposed, there is a warning mechanism. This mechanism does not have the nature of a consultation procedure; it is more of a notification stating that you should fix the matters incompliant with the law. 5.5 Could the application of more fines, or the breach of particular regulations, result in the revocation of the authorisation, or in the intermediary being struck off the register (if any), or in the prohibition to act as an insurance intermediary? If yes, which are the most relevant circumstances? Please refer to 5.2. 10