In Turkey, insurance law is regulated by the Turkish Commercial Code, the Insurance Law, and the Reinsurance Law. These legal frameworks govern the legal relationships between policyholders, insurers, and insured parties, with the primary goal of ensuring both financial and moral compensation for the insured parties.
In this blog, we will delve into the legal aspects of canceling insurance in Turkey and explore the responsibilities of insurance companies. This guide will walk you through how to cancel insurance in Turkey and what the law requires of insurers along the way.
Related: Health insurance tips for foreigners in Turkey
Insurance Company Responsibilities
Obligations During the Policy Term
Insurance companies are obligated to set aside technical reserves and provide coverage during the policy term.
Technical reserves and guarantees are essential to enable insurance companies to fulfill their obligations under the insurance contract promptly. This requirement is outlined in Article 18 of the Insurance Law.
Article 18 – Technical Reserves and Financial Statements: Insurance and reinsurance companies must prepare their financial statements and accounts in accordance with the principles and standards specified by the authority. They must also announce these statements and provide a copy to the authority.
Restrictions on Asset Reduction
Insurance and reinsurance companies are prohibited from using their assets, whether directly or indirectly, in ways that deviate from the established rules. This includes refraining from making undisclosed or unreported profit transfers.
If a shareholder holds privileged shares with the authority to appoint members to the board of directors, they must obtain permission from the authority regardless of the ownership percentage.
Article 19 – Restriction on Asset Reduction: Insurance and reinsurance companies, except for their own debts or obligations arising from insurance transactions, cannot use their assets as collateral, provide guarantees, or extend credit to their employees, shareholders, affiliates, or other individuals and entities.
Subsection (2): The transfer of shares conferring the authority to appoint members to the board of directors, directly or indirectly owning ten percent or more of the capital or voting rights, or even below this percentage if it affects the control and management of the company, is subject to the approval of the authority.
Insurance and reinsurance companies must notify the authority of any shareholders who no longer meet the required qualifications. Shareholders losing these qualifications are not entitled to participate in profits other than dividends. Other ownership rights are exercised by the guardian in this case.
Changes in the Articles of Association
Any changes to the articles of association of insurance and reinsurance companies require approval from the authority. Amendments that do not receive approval cannot be included in the agenda of general meetings or registered in the trade registry.
Article 8 – Amendments to Articles of Association: In the case of changes to the articles of association of insurance and reinsurance companies, the approval of the authority is required. Proposals for changes that do not receive approval from the authority cannot be included in the agenda of general meetings or registered in the trade registry.
Financial Strengthening
If a company fails to meet the minimum guarantee fund requirements, secure the necessary collateral, hold adequate assets for technical reserves, or fulfill its contractual obligations, the authority can take various measures. These measures range from requiring the company to submit a financial plan to more severe actions such as increasing capital, suspending dividend distribution, or mandating asset sales.
Article 20 – Strengthening of the Financial Structure: If it is determined that an insurance or reinsurance company cannot meet the minimum guarantee fund requirement, cannot secure the necessary collateral, lacks sufficient assets for technical reserves, or cannot fulfill its obligations under the contracts, or if its financial structure is at risk, the authority may, by giving an appropriate period, request the relevant insurance and reinsurance company to strengthen its financial structure.
Legal Aspects of Insurance Termination
Insurance termination in Turkey can occur under two main categories: License Cancellation and termination in accordance with Article 10 of the Insurance Law.
License Cancellation
Article 7 of the Insurance Law outlines the conditions for license cancellation, which are categorized into five main sections.
Article 7 – License Cancellation: License cancellation may occur under the following circumstances, provided that the provisions of this Law on license cancellation are reserved:
a) In case a part or all of the conditions for granting a license are lost, within a period to be determined by the Authority, not less than three months.
b) Within one year from the date the license is granted, or except for those approved by the Authority, if no insurance or reinsurance agreement is concluded uninterruptedly for six months, unless otherwise approved by the Authority.
c) If, as a result of applications contrary to the insurance legislation, it is understood that the rights and interests of the persons concerned with the insurance agreement are in danger, except for the provision of Article 20.
ç) Except for the provision of Article 20, if the obligations arising from this Law are severely violated, or if the violation of obligations becomes a common practice, within a period of not less than three months, to be determined by the Authority, provided that the provisions of this Law on license cancellation are reserved.
d) If, without reasonable reasons and beyond the changes announced to the Authority, the targets specified in the business plan are excessively deviated.
In the above situations, the licenses of insurance and reinsurance companies, either for specific branches or all branches, can be canceled by the Authority. The cancellation is announced in the trade registry and two of the top-ten daily newspapers in Turkey.
Termination under Article 10 of the Insurance Law
Article 10 of the Insurance Law addresses the termination of insurance contracts. It covers the legal procedures and conditions for terminating an insurance policy. There are two fundamental principles to consider.
Termination by License Cancellation
If an insurance company’s license is canceled, the authority will grant a period of no more than six months for the transfer of the affected policies to another insurance company. If the policies are not transferred within this period, the authority is authorized to take any necessary measures, including the forced transfer of the policy portfolio.
Termination by Policyholders or Insurers
The termination of insurance policies by policyholders or insurers should follow the provisions set forth in Article 10 of the Insurance Law. The termination procedures may vary depending on the type of insurance and the specific terms of the policy.
Understanding the legal aspects of canceling insurance in Turkey is crucial for both policyholders and insurance companies. It is essential to comply with the regulations and procedures outlined in the Turkish Commercial Code, Insurance Law, and Reinsurance Law to ensure a smooth and lawful termination process. Consumers should also be aware of their broader protections, such as consumer rights in online shopping in Türkiye, and related cancellation matters like cancelling timeshare contracts in Turkey. For property owners, obtaining DASK insurance without a title deed is another important consideration. For further legal guidance and assistance regarding insurance matters in Turkey, please consult with our team of experienced attorneys at Bayraktar Attorneys.
