Roxas calls for concerted action on pre-need sector

Trade and Industry Secretary Manuel Roxas II said various government agencies should undertake concerted efforts in monitoring and policing the country’s pre-need industry in order to fully protect the welfare of millions of Filipino consumers who have invested hundreds of billions of pesos of hard earned savings in a variety of educational, pension and memorial plans.

"I will also recommend to the Monetary Board that, while pre-need companies are considered as part of the non-bank financial sector, we should look more closely into how pre-need companies are managing their trust funds considering the huge financial impact the industry has on our economy," said Roxas, who is also a member of the Monetary Board.

"These are savings mobilized from millions of Filipino consumers," Roxas said. To protect the interests of the depositors, banks are governed by tough reserve requirements and DOSRI (directors, officers, staff and related interests) rules, Roxas cited. Pre-need companies that invest on ventures owned or managed by affiliates and stockholders’ relatives are comparable to what is classified as DOSRI accounts of banks, he said.

Roxas, as a congressman from Capiz and majority floor leader at the House of Representatives, advocated closer monitoring of how pre-need companies are managing their trust funds. He sponsored the original bill filed four years ago which would have transferred supervision of the pre-need industry to the Insurance Commission.

As part of DTI’s consumer welfare protection thrust and in response of growing consumer complaints, Roxas instructed early this year DTI’s Consumer Welfare and Trade Regulation Group headed by Undersecretary Adrian Cristobal Jr. to update an industry study Roxas commissioned more than three years ago. The study is now being completed. As part of his continuing advocacy, Roxas has also been coordinating with Securities and Exchange Commission Chairman Lilia R. Bautista.

In a meeting with the SEC chief a few weeks ago, Roxas commended Bautista for taking bold steps in closely monitoring the industry and meeting head on the issue of trust fund deficiencies. SEC, under Bautista’s leadership, issued a set of new rules on the registration and sale of pre-need plans.

Last April, SEC issued Memorandum Circular No. 4 setting the guidelines for paid-up capital requirements for existing pre-need companies. Those with traditional educational plans are required to have a minimum paid-up capital of P100 million. Those with paid-up capital of less than P50 million were given a month to put up the capital deficiency.

The DTI is continuously coordinating with SEC and will be coming out with additional recommendations on how to further protect the interests of the Filipino consumers, Roxas said, "Questions have been raised about the financial condition of some of the pre-need plan companies and how government regulators are protecting the interests of the planholders," Roxas said.

The pre-need industry is one of the most successful and important industries in the non-bank financial sector. Pre-need plans have become very popular because of their strong emotional appeal and their promise of providing for the future of their planholders and beneficiaries.

Roxas said that sales of pre-need plans have grown at double-digit rates annually, noting that a total of almost six million plans valued at about P260 billion have been sold during the past 16 years. Roxas argued that the fast growth experienced by the industry should not be equated with stability. He noted that more than 30 percent or 28 of the 92 registered pre-need companies have ceased operations. Based on data from SEC, only 45 pre-need plan companies have renewed their licenses to sell pre-need plans. Roxas cited. There were 54 active companies in 2001.

"Based on our initial assessment, approximately 92,000 planholders with P2.7 billion worth of gross contract sales were adversely affected by the closure of the 13 companies where data is readily available," Roxas said.

"These are hard-earned money, the blood, sweat and tears of the average wage earners who were encouraged to buy these plans to ensure the future of their children through education, provide greater financial security during their retirement years and shield their loved ones from huge expenses once they die," Roxas said.