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Discuss this article (15 Comments)Time for takaful
by This email address is being protected from spam bots, you need Javascript enabled to view it on Tuesday, 20 October 2009
Hollywood director Woody Allen once joked: “There are worse things in life than death. Have you ever spent an evening with an insurance salesman?”
But lack of insurance is no laughing matter for people who have lost their jobs in the current financial crisis.
For expatriates, losing a job means an instant notification of loss of salary to their bank. The bank freezes all accounts – in credit or overdrawn; stops all credit cards; no longer honours any post-dated cheques in the market; and, if it is owed money, notifies immigration so that their customers cannot leave the country.
Small wonder that this year has seen a slew of expatriates vanish in the middle of the night without telling their employer or even their friends that they were leaving.
GCC governments do not provide a safety net for expatriates who lose their jobs. Laws typically date back to a time when visiting workers didn’t put down their own roots.
Oil workers, construction engineers and airline staff were taken care of by their companies: housing, schools, transportation were all provided for in the much-missed ‘expat package’.
Banks were barely exposed to any risk with these expats. Customers might have credit cards and overdrafts, but very few had tens of thousands of dollars of exposure on rent cheques and car loans.
I remember the time well. In the early nineties, I had to leave a job in Dubai to return to the UK. My gratuity payment easily covered the outstanding debts I had on a modest car and small overdraft, despite the fact that I’d only been in the UAE for a couple of years on a penurious salary.
How things have changed in the past decade. It is common today for the debit column of a Western expatriate in the lower Gulf to look something like this:
PDCs for year’s rent up front: $55,000
Outstanding car loan: $50,000
Credit card balance: $10,000
Overdraft: $10,000
That’s $125,000 worth of credit secured against the assumption that a salary of, say, $10,000 will land in the bank every month.
And that is just the people that rent their homes. In the boom times banks were offering $500,000 mortgages to people with salaries as low as $3,000 per month. That’s almost 14 times their annual salary.
Against all this colossal debt, there has been virtually no mechanism to insure oneself against being made redundant – an immeasurably more likely event than death or a house being destroyed (both of which are insurable) for the typical expat.
There are cultural barriers to the mass uptake of insurance in the Gulf, and the creation of a broad, deep and sophisticated insurance industry.
But the region’s economies have galloped beyond what might have been deemed culturally acceptable ten years ago, and the insurance industry (and the Islamic version, Takaful), the financial services authorities, the government and the legal system must catch up.
An evening spent with an insurance salesman might not be the greatest pleasure in life, but it is time for authorities, businesses and individuals of the Gulf to do just that.
READERS' COMMENTS
Disclaimer: The views expressed here by our readers are not necessarily shared by ArabianBusiness.com or its employees.
Guys , I got enough of you :-) lol
Posted by Bob Steve on Friday 23 October 2009 at 05:13 UAE time
Guys , I have a few things to tell you :
1) The topic is good since it is trying to highlight an already existing problem & left the discussion for solution open . It is good as it stimulated many responses from smart people like you.
2)There is a nice triangle : Insurance - institution & the customer - all will be happy:- )The bank wants to give loans ( not for charity - they make business & they encourage people to get loans ) - the customer is happy coz.....etc. BUT the customer wants to feel SECURE & here insurance companies will be happy to take a bite.See? everybody is happy & the government will not suffer from its financial institutions losses :-)
3)No one will try to get sacked to get the secured loan free coz this means also loss of income ,etc. You get basically good people in UAE afterall & even the failures should be little !! Insurance companies can accept that.
3)Some people who appears here as expats are really hostile against expats !! Funny. First , every one can be replaced : Obama is the president now right ? so no need to use the word "disposable " when u talk about expats - it creates negative feelings - as I said before - everyone in aaaaaaaany position anywhere in the world can be replaced. No need to make UAE look as an unfair stronger coutry against the poor billions of expats - this makes people hate UAE & this is a negative feeling !! Employers are generally stronger than employees ANYWHERE in the world & that's why governments protect them.But some countries - oil countries / no need to mention names - are abandoned now by expats no matter what.UAE is a LOVED country ; please do NOT destroy that.The relationship is mutual : UAE needs expats & we respect & love UAE & provide our services & let's everybody keep it at that , ok ?
4)Some opinionswere totally correct.It is a lot better,wiser,smarter & secure to get what u can afford.I add : " .. but if u have to , borrow securely " ... no hard feelings.
Good luck.
Posted by Bob Steve on Friday 23 October 2009 at 05:13 UAE time
Guys , I have a few things to tell you :
1) The topic is good since it is trying to highlight an already existing problem & left the discussion for solution open . It is good as it stimulated many responses from smart people like you.
2)There is a nice triangle : Insurance - institution & the customer - all will be happy:- )The bank wants to give loans ( not for charity - they make business & they encourage people to get loans ) - the customer is happy coz.....etc. BUT the customer wants to feel SECURE & here insurance companies will be happy to take a bite.See? everybody is happy & the government will not suffer from its financial institutions losses :-)
3)No one will try to get sacked to get the secured loan free coz this means also loss of income ,etc. You get basically good people in UAE afterall & even the failures should be little !! Insurance companies can accept that.
3)Some people who appears here as expats are really hostile against expats !! Funny. First , every one can be replaced : Obama is the president now right ? so no need to use the word "disposable " when u talk about expats - it creates negative feelings - as I said before - everyone in aaaaaaaany position anywhere in the world can be replaced. No need to make UAE look as an unfair stronger coutry against the poor billions of expats - this makes people hate UAE & this is a negative feeling !! Employers are generally stronger than employees ANYWHERE in the world & that's why governments protect them.But some countries - oil countries / no need to mention names - are abandoned now by expats no matter what.UAE is a LOVED country ; please do NOT destroy that.The relationship is mutual : UAE needs expats & we respect & love UAE & provide our services & let's everybody keep it at that , ok ?
4)Some opinionswere totally correct.It is a lot better,wiser,smarter & secure to get what u can afford.I add : " .. but if u have to , borrow securely " ... no hard feelings.
Good luck.
Why
Posted by Mark Flap on Thursday 22 October 2009 at 20:48 UAE time
Why would anyone insure me against losing my job? How can they guarantee that I won't get myself sacked through incompetence or laziness? Or just flee the country?
Yet another crowd-baiting comment from Corder to try to get some reader comments.
Posted by Mark Flap on Thursday 22 October 2009 at 20:48 UAE time
Why would anyone insure me against losing my job? How can they guarantee that I won't get myself sacked through incompetence or laziness? Or just flee the country?
Yet another crowd-baiting comment from Corder to try to get some reader comments.
This must be the silliest article I have ever seen in AB
Posted by Ross, Dubai, UAE on Thursday 22 October 2009 at 15:05 UAE time
Sorry Rob,
As expats we move to the GCC to make money, experience a different lifestyle and in some cases further our careers.
WHy should the governments here fun excessive lifetsyles by people who should know better?
As an expat I am appalled by some of the things I see in Dubai and have no sympathy for someone who over extends themselves - unless they bought proerty to live in and the market crashed.
If you buy an expensive car and rent an apartment you can't afford then to be honest you only have yourself to blame - whatever your background or country of origin.
Its time that Expats realised there is no free lunch in the GCC if you want to get on in the future and earn a good livng you are going to have to start working hard!
If thats too hard for you - then go back to your home country and really tell yourself its better at home - we all know thats not the case...
Posted by Ross, Dubai, UAE on Thursday 22 October 2009 at 15:05 UAE time
Sorry Rob,
As expats we move to the GCC to make money, experience a different lifestyle and in some cases further our careers.
WHy should the governments here fun excessive lifetsyles by people who should know better?
As an expat I am appalled by some of the things I see in Dubai and have no sympathy for someone who over extends themselves - unless they bought proerty to live in and the market crashed.
If you buy an expensive car and rent an apartment you can't afford then to be honest you only have yourself to blame - whatever your background or country of origin.
Its time that Expats realised there is no free lunch in the GCC if you want to get on in the future and earn a good livng you are going to have to start working hard!
If thats too hard for you - then go back to your home country and really tell yourself its better at home - we all know thats not the case...
It doesn't matter if you are an expat...
Posted by Sandjockey, Dubai, UAE on Thursday 22 October 2009 at 08:26 UAE time
...'cause this article had nothing to do with an identity issue and everything to do with borrowers living outside their means.
Yes, there is an issue of identify for expats, we are not accepted and are a disposable item but you know that coming here. I knew it 12 years ago and although at times I was hoping it would change I have accepted it won't, not in my lifetime.
However, that doesn't negate the fact that even if it did change that I would still need to have a retirement plan, one in which I knew how I was going to live and on what money. Sure you can go out and get insurance to pay off your debts in case of being layed off BUT that totally ignores the real issue...how are you going to live when you retire!!!!!
Rather than spending money on the insurance, why don't you wait to create the debt until such time as you have a minimum of 3 months salary in the bank?
Rather than spending the money on the fancy car why don't you wait to create debt until you have started a retirement fund?
Rather than seeing how much you can spend each month why don't you look at paying yourself first and save a minimum of of 10% of your salary each month (in addition to your retirement fund, btw).
Sure that may seem like a pittance in the beginning but the time value of money will show you how quickly that grows.
Sure it may also be hard at the beginning but it will solve a lot of problems in the future.
As I jump off my soapbox I'll reiterate what I started this whole chain with....personal responsibility, which may include acknowledging that you will need to move out of this country, goes a very very very long way.
FWIW...
Posted by Sandjockey, Dubai, UAE on Thursday 22 October 2009 at 08:26 UAE time
...'cause this article had nothing to do with an identity issue and everything to do with borrowers living outside their means.
Yes, there is an issue of identify for expats, we are not accepted and are a disposable item but you know that coming here. I knew it 12 years ago and although at times I was hoping it would change I have accepted it won't, not in my lifetime.
However, that doesn't negate the fact that even if it did change that I would still need to have a retirement plan, one in which I knew how I was going to live and on what money. Sure you can go out and get insurance to pay off your debts in case of being layed off BUT that totally ignores the real issue...how are you going to live when you retire!!!!!
Rather than spending money on the insurance, why don't you wait to create the debt until such time as you have a minimum of 3 months salary in the bank?
Rather than spending the money on the fancy car why don't you wait to create debt until you have started a retirement fund?
Rather than seeing how much you can spend each month why don't you look at paying yourself first and save a minimum of of 10% of your salary each month (in addition to your retirement fund, btw).
Sure that may seem like a pittance in the beginning but the time value of money will show you how quickly that grows.
Sure it may also be hard at the beginning but it will solve a lot of problems in the future.
As I jump off my soapbox I'll reiterate what I started this whole chain with....personal responsibility, which may include acknowledging that you will need to move out of this country, goes a very very very long way.
FWIW...
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