Defying debt: Play your cards right

At least a thousand people have claimed the credit shield following savage job cuts in Dubai, XPRESS has learnt.

A credit shield is insurance that allows people to have the outstanding balance on their credit card waived in case of unforeseen circumstances, including job loss.

This is an optional fee, typically less than one per cent of the total outstanding amount, added to the monthly bill of credit card holders.

However, many of these card holders who are expecting to be protected due to loss of their jobs, may be in for disappointment with some card companies only offering credit shield in case of death and disability – not involuntary job loss.

A claims officer at Oman Insurance, one of the leading insurers in the UAE, said they received “between 10 to 20'' claims daily from people who were given termination letters in the last three months.

“This is a new phenomenon for us. Claimants present termination letters and we take it from there,'' said the official, who asked not to be named.

Oman Insurance offers credit shield to credit card holders of RAK Bank and Mashreq Bank, among others.

Fine Print

“Approval of a credit shield claim depends on the fine print of the agreement,'' said the official.

While declining to give the number of those who were claiming the credit shield, he explained that “more than 70 per cent'' of claim applications were approved.

“If a bona fide customer comes to us this January and presents a termination letter, then his credit shield will pay for the amount due, starting from the end of February.'' In theory, credit shield makes your bank or insurer shell out for your outstanding credit card bills when you lose your job.

But availing of the shield can be extremely tough, as Cecil D. fears after losing her Dh8,000-a-month secretarial job in early December.

When she was terminated from her earlier job in Dubai in 2006, she had asked her bank to activate her credit shield.

“I had outstanding credit card debts of about Dh5,000.

“A bank employee assured me it would work, but for the two months that I didn't have a job, the same bills kept coming. I wonder if credit shield here works at all,'' she said.

Given the confusion, XPRESS approached 10 banks and institutions to find out if credit shield, indeed, worked.

Four institutions – Citibank, First Gulf Bank, Mashreq and Abu Dhabi National Takaful Co. (Takaful) – said credit shield covered involuntary loss of employment (ILOE), even though none gave figures on how many applications had been received and how many were approved so far.

Standard Chartered Bank and Emirates NBD said their credit shield did not cover lay offs, while RAK Bank, Abu Dhabi Islamic Bank, Commercial Bank of Dubai and Abu Dhabi Commercial Bank, declined to respond to XPRESS queries.

However, William Keliehor, Citibank's Credit Cards Head for Middle East, Africa and Pakistan, gave assurance that it would work for those who meet the criteria. “We view credit shield as a valuable product that can further protect customers, especially in times like these.''

Application spike

With lay offs gathering steam in November and December, the “lull before the storm'', a spike in credit shield claim applications may kick in from early this year, warned Nazih Haider, Head of Claims at Takaful, one of the UAE's biggest insurers, which is backed by Abu Dhabi Islamic Bank and Abu Dhabi Investment Company.

“Most companies gave one or two-month grace periods for people after terminating them. So credit shield claims may start to come in from this month,'' said Haider. Since credit shield is optional, about “four in 10 cardholders'' avail of the benefit, said Suvo Sarkar, General Manager Retail Banking, Emirates NBD.

Tight requirements

Since the global financial crisis started around October, reinsurers have tightened entry rules such as higher salary requirement and automatic salary transfer to issuing bank for new credit shield coverage.

“Existing insurance contracts still stand. The new rules apply to new credit card holders,'' said Haider, whose company recently established a joint venture company with Zurich-based Zurich Financial Services Group.

D. Sudhakaran, Assistant General Manager of National General Insurance Co (NGI), expects credit shield claims to rise. “In normal times, claims against insolvency are less than one per cent. Since there's an economic downturn, the number could go up proportionately,'' he warned.

“In my experience, 60 per cent of credit card holders pay in full on time in the UAE. The rest just pay the minimum. With this situation of job losses and uncertainty, the number of defaults could rise,'' added Sudhakaran, who has worked in insurance for 27 years.

NGI accounts for about a third of the UAE credit insurance cover for manufacturers and traders [with Coface, one of the largest credit insurers].

“It is quite possible many of these people with unpaid credit card bills may have become insolvent or be in protracted defaults in payment,'' he added. In the fog of uncertainty, a clearer picture of market conditions would be helpful for lenders to make informed decisions, instead of over-reacting based on emotions, said Zaid Kamhawi, Chief Business Officer of Emcredit, a UAE credit bureau.

Claims procedure

Frequently asked questions


What is credit shield?

It is an insurance scheme designed for customers holding credit cards to cover liabilities on their card during unforeseen circumstances. The insurance typically covers the age group 21 to 64 years. Some card issuers automatically enroll cardholders to its credit shield policy following a trial period.

When does credit shield work?

In case of death, disability and involuntary loss of employment.

How much does it cost?

Typically, it is less than one per cent [typically 50 to 99 fils for every Dh100] outstanding on your credit card monthly.

Documents to be presented by those terminated?

Termination letter, stating the cause. But credit shield won't apply if termination was due to negligence or poor performance.

What is credit shield coverage for people terminated from their job?

Typically in the UAE, a credit shield will cover monthly payments due until the insured person finds a new job or up to maximum of 12 months [in some contracts]. Others don't specify coverage period in case of disability or involuntary job loss.

What if I don't pay my minimum payment due?

Where a cardholder's “total minimum payment due'' and any other amounts due and payable have not been paid for 90 days (as per latest statement), the credit shield will not apply and no benefit will be paid in this situation.

Credit shield advice

Credit shield, usually less than one per cent of balance, is an insurance against death, disability or involuntary job loss

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