Consumer Protection Through Insurance Arbitration: The Turkish Insurance Arbitration Scheme

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

2. 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.

3. 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”.

4. 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).

5. 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.

6. 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.

7. 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.

8. 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”.

9. 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

10. 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.

11. 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.

12. 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.

13. 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.

14. 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.

15. Application Fees(14/24) Basis: amount of claim € 1 - 2.500: € 17.5 € 2.501 - 7.500: € 50 € 7.500 + : € 125 No other payment requested from claimant = light financial burden.

16. 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).

17. 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.

18. 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.

19. 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.

20. 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.

21. 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.

22. 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”.

23. Outcome Statistics(22/24) • Majority of claims (1590 as at 31.3.2011): 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%; 91-120: 20%.

24. 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.

25. 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.

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