Abstract
ABSTRACT The regulated environment of insurance industry in Turkey has started to undergo significant structural changes since 1988. The main purpose of these changes is to provide integration between the insurance firms in Turkey and the ones in European Community (E.C.). In fact, deregulation started with transferring of all insurance firms in Turkey to supervision of Treasury Undersecretary in 1986. However, Free Tariff System introduced in 1989 is accepted as the most notable factor which contributed to deregulation. After the year 1989, regulations concerning the relations between insurance firms and their agents were changed and other regulations regarding the issues of collection and solvency ratios of firms were introduced. In light of these observations, it is generally accepted that the structure of insurance industry in Turkey is changing. However, there is no consensus on what the resulting asset size distribution of insurance firms may look like when this adjustment process is completed. The primary purpose of this study is to make an investigation about the likely impact of changing regulations on the market structure of insurance sector in Turkey. For this reason, the dynamic analysis of insurance firms' asset size distribution to the changing environment is measuredusing the Markov Process Methodology. To project the alternative future asset size distributions of insurance firms, this study, first, defines two six-year periods, corresponding to the two regulatory environments observed in last 12 years: - Before deregulated period, (1982-1988), - Deregulated period, (1989-1994). Then, the transition probability matrix of relative insurance firm growth under each regulatory policy is constructed from the whole population rather than a sample. Therefore, the projections of future market structures will be more reliable in this study. Although all the conclusions of this study are fundamentally based on the projections of Markov Process, the comparison of Lorenz curves and the calculations of concentration indices are also made in order to obtain some important insights about the future market concentration of insurance industry in Turkey. The findings of this study indicate that the future market structure of insurance sector in Turkey may consist of more medium-sized firms, and the number of small and large firms may decline gradually. However, this trend does not imply that small and large insurance firms will disappear completely. On the contrary, small firms are adjustingthemselves to the changing regulatory environment and, in the long-run, they are likely to improve their competitive edge by utilizing their advantage in services. Likewise, large firms are likely to be forced to price more competitively. Further analyses demonstrate that market concentration of insurance sector in Turkey has a tendency to decrease as a result of deregulation. 3
