Consumer Protection Through Insurance Arbitration: The Turkish Insurance Arbitration Scheme Doç. Dr. Kerim Atamer Koç University, Istanbul Turkish Insurance Arbitration Commission (Member, Board of Directors)

Problem (1/24) Turkish General Directorate of Insurance Administration (GDI) notes: → Insurance litigation in Turkey → Long duration (5-10 years with appeal) No specialist Courts High costs for “consumer”-claimants Insurers financially capable to have proceedings dragged on.

Solution (2/24) “Act on the Regulation of Insurance Activities, 2007” (ARIA) Art. 30 in 23 sections “Insurance Arbitration Scheme” Inspiration: English, Canadian and Scandinavian practice of “insurance ombudsman” “Ombudsman” alien to Turkish law → → Not “ombudsman” but “arbitration”.

Structure – 1 Structure – 1 (3/24) Insurance Arbitration Commission (IAC) Board of Directors (BoD), consisting of 5 members who represent: GDI (1) Associations of Consumer Protection (1) Association of Insurance Companies (2) Academic expert on Insurance law (1).

Structure – 2 Structure – 2 (4/24) Staff:Director Assistant Directors (2) Sufficient number of “Reporters” specialising in life and non-life insurance (currently 1 / 2) Office personnel External: Arbitrators specialising in life and non-life insurance.

Arbitrators Arbitrators (5/24) Requirements: Higher education of at least 4 years and “Insurance law” experience of at least 5 years or “Insurance practice” experience of at least 10 years → Not admitted (e.g.): medical doctors, engineers, mechanics.

Admittance Admittance (6/24) Potential arbitrator: Application to IAC → if approved: Submission to GDI → if approved: Registration in the “List of Insurance Arbitrators” Separate lists for life and non-life. Currently: 14 / 123 Lists kept by the Ministry of Justice.

Subscription Subscription (7/24) Entry in the Insurance Arbitration Scheme: not mandatory Should “insurer” wish to subscribe: (1) Written Agreement with IAC and (2) Payment of subscription fee. Annual fee: about € 10,000 GDI: “subscription = positive criterion in annual evaluation”.

Current S Current Status (8/24) → GDI comment → strong incentive to enter Currently: 62 companies / 46 subscriptions Life: 24 companies / 17 subscriptions Non-life: 38 companies / 29 subscriptions Premium: 91% of total premium → Majority of “active market” subscribed. System operating since: 21 August 2009

Applicant – 1 Applicant – 1 (9/24) Application to arbitration scheme Admitted only in respect of: “Claimant against insurer” = Policyholder, insured, beneficiary Victim against liability insurer Subrogated property insurer (e.g. fire, hull) of victim against liability insurer.

Applicant – 2 Applicant – 2 (10/24) “Claimant”: Not limited to “consumer” → Open to e.g. traders, banks, shipping companies, every other business venture. Original intention? Not clear from the legislative history. Practice (non-life): number of non- consumer claimants increasing.

Non-Applicant Non-Applicant (11/24) Right of application not admitted to → “Insurer” as “claimant” against e.g.: Policyholder for premium, Insured for return of excessive payment, Third party, who is not an insurer of legal liability, in pursuit of subrogated claim. Ordinary Court proceedings required.

Pre Condition Pre Condition (12/24) Claimant must firstly apply to Insurer. If application rejected, or Insurer silent for 15 working days: Right given to invoke insurance arbitration. Application to be filed with IAC. Printed application form: published on IAC’s website.

Arbitration Agreement Arbitration Agreement (13/24) Required and sufficient: Insurer subscribed to the Scheme = Agreement concluded with IAC. Arbitration clause deemed to be included in all subsequent insurance contracts. No individual arbitration agreement required in the contract, policy or information form.

Application Fees Application Fees (14/24) Basis: amount of claim € : € 17.5 € : € 50 € : € 125 No other payment requested from claimant = light financial burden.

Review by Reporter Review by Reporter (15/24) Receipt of application → First stage: review by Reporter (life / non- life) Time limit: 15 days. Scope of review: two steps Procedural Missing documents Accepted: Appointment of arbitrator(s).

Tribunal Tribunal (16/24) Constitution: BoD € 1 – 7,499: single or 3 € 7,500 + : 3 arbitrators Appointment: from the list in accordance with turn Exception: if arbitrator in turn not “expert”, then next “expert” (e.g. marine insurance) Also: geographical aspects, work load.

Procedure – 1 Procedure – 1 (17/24) Principle: Documents only (Art. 30 AIDA sec. 15 sent. 8). GDI: Tribunal may hold hearing in its discretion (Directive, 2009) “Provisions of Code of Civil Procedure on Evidence are applicable” (Directive, 2009) If so: witness hearings, experts, visit of site etc. must all be admitted. Conflicting views among BoD members.

Procedure – 2 Procedure – 2 (18/24) Practice: Tribunals make use of all provisions on Evidence. Time limit for Award: 4 months Parties may extend If not observed: arbitration null and void, renewal not admitted → Court decision required. 3 arbitrators: Majority decision sufficient.

Fees of Tribunal Fees of Tribunal (19/24) € 1 - 7,499: 3% of claim for each arbitrator € 7,500 +: 2% of claim for each arbitrator Min: € 112,5 – Max: € 500 (Annual adjustment by Treasury allowed.) Payment by IAC Funding: Insurer pays total fee up-front Award in favour of Insurer: 50% refund First 30 files annually each Insurer: free.

Appeal – 1 Appeal – 1 (20/24) Grounds for appeal distinguished: 1. Appeal on material grounds: a) Final and binding: up to € 20,000 (may be increased by the Parties) b) Appeal admitted: € 20,001 + Limit = amount awarded (dismissed?) 2. Appeal on procedural grounds: in any event.

Appeal – 2 Appeal – 2 (21/24) Appeal to: Supreme Court (Chamber 11 on Insurance law) Soon (?): Court of Appeal as 2nd instance Award enforceable despite appeal, Unless Insurer puts up security to stay enforcement. Practice so far: appeals dismissed on the grounds that “no material or procedural errors detected”.

Outcome Statistics (22/24) Majority of claims (1590 as at ): motor- liability, auto, fire, health, theft Non-life: 94% Application by real persons: 83% Application without an attorney: 88% Awards: 28% admitted, 39% partly admitted, 33% dismissed (increasing) Duration (days): 1-30: 33%; 31-60: 28%; 61-90: 19%; : 20%.

Funding of Scheme (23/24) Insurers: annual subscription fee & Tribunal’s fees (after 30 cases) Claimants: application fees (minimal) Rest: “Security Fund” (= pool) = Deductions from compulsory insurance (liability or otherwise) premiums: Insurers: 1% of gross premium revenue Policyholder: 2% of net premium.

Conclusion Conclusion (24/24) Comparison to ordinary Court litigation: Speed & costs: most favourable to Claimants Quality of proceedings: not worse than before Courts Problem areas: mostly procedural Law in the making → Revisions to be expected soon.

Consumer Protection Through Insurance Arbitration: The Turkish Insurance Arbitration Scheme Doç. Dr. Kerim Atamer Koç University, Istanbul Turkish Insurance Arbitration Commission (Member, Board of Directors)