While most Lebanese struggle to withdraw more than between $100 and $300 weekly, Lebanon’s rich have been stashing large quantities of cash in their homes – creating big business for insurance brokers.
Sales of “cash-in-safe” insurance policies at Nasco – one of Lebanon’s largest insurance groups – have quadrupled since protests erupted across Lebanon in October last year, explained Tarek Abi Saleh, a reinsurance broker at the firm.
“The amounts for private individuals are shocking,” Saleh told Al Arabiya English. “I hadn’t seen more than $100,000 before the [revolution] for private individuals … Right now we’re talking about people putting a million dollars in their homes.”
In the past three months, Saleh has helped insure cash for 25 individuals and businesses – with an average value of just under $1 million per client. Businesses taking out cash insurance policies from Nasco are mainly from the retail sector – others are from business services and manufacturing sectors.
The trend confirms growing suspicions that wealthy and powerful individuals are bypassing unofficial capital controls imposed by Lebanese banks. For almost two months, Lebanese banks have applied ad hoc withdrawal limits, aiming to prevent a nationwide bank run which could decimate one of the country’s few assets.
Depositors have little faith in the Lebanese economy since the lira depreciated by at least 30 percent on the open market and major credit ratings agencies predicted default on the country’s $86 billion public debt. Lebanon, one of the world’s most indebted countries, has a debt to GDP ratio of 151 percent, according to International Monetary Fund data.
In December, Lebanon’s central bank Governor Riad Salameh promised to launch an investigation into illegal capital flight. Central bank data show a fall in non-resident customer deposits of $2.21 billion between October and November. This amounts to around 5 percent of the country’s gross domestic product.
Commercial banks are currently responsible for slowing the dollar hemorrhage since Lebanon’s central bank, Banque du Liban, has been reluctant to impose formal capital controls.
But Salameh appeared to come one step closer to formalizing controls earlier this month, after seeking extra powers to ensure “fair relationships” between banks and customers.
However, with seemingly arbitrary capital controls, which are neither centralized nor legal, it seems the trend of rich Lebanese people hoarding cash is set to continue – with fear of burglaries and thefts continuing to drive insurance.
The past months have seen a hike in the cost of insuring against “political violence” – damage caused by political instability including war, strikes, looting, and protests.
“In Lebanon, the rates are doubling or tripling – as a minimum,” said Saleh, noting incidents of shoplifting during the beginning of the protests in downtown Beirut which affected stores including Puma and Patchi, an upper-end chocolate shop. The latter is a shop owned by former minister Mohammad Choucair.
A store’s location can affect the cost of insuring against political violence; businesses near downtown, the epicenter of Beirut’s uprising, cost significantly more to insure than more remote branches. “Now the underwriter is coming back and saying ‘No way will I insure you for $100,000 per year. I am going to need minimum $400,000 or $500,000,’” Saleh said.