SEC bats for stricter rules to govern pre-need industry

The Securities and Exchange Commission is seeking stricter rules governing the issuance of pre-need plans to ensure that pre-need firms are in good financial health and can cover future claims of planholders.

SEC Chairperson Lilia R. Bautista said the commission will continue to study proposed measures that will improve the regulation of the pre-need industry pending the passage of a law that will transfer the sector’s supervision to the Insurance Commission.

Bautista said the SEC welcomes the prospect of transferring the regulation of the pre-need industry to the Insurance Commission as this will allow the corporate watchdog to focus on laying the groundwork for the reopening of the futures exchange.

As it awaits the enactment of the Pre-need Code, the SEC is setting standards for the accreditation of auditors and actuaries of pre-need companies to make them report accurate information to the public.

An actuary monitors the financial health of a pre-need company. It is a person employed by a pre-need firm to calculate the risks involved in a plan and the premiums payable by persons taking out the plan. The ARL, a guide on how much pre-need companies would pay planholders in the future, is computed based on assumptions such as interest rates, inflation rates, percentage of lapsed contacts and in the case of education plans, tuition fee increases.

Bautista said tighter supervision over actuaries would guide the SEC and the pre-need companies to ensure the trust fund would meet its maturing plans.

The SEC also plns to require pre-need companies to set up a liquidity fund out of a portion of the trust fund.

Aside from this, the SEC intends to require the establishment of a planholders’ protection fund to answer for claims of planholders in case a pre-need firm runs into financial difficulty.

The creation of a planholders’ protection fund forms part of the Pre-need Code which is pending at the Senate.

Under the proposed measure, all registered pre-need companies are required to contribute at least P5 million to the fun, which will be administered by the Bureau of the Treasury.

The bill likewise requires the adoption by pre-need companies of a uniform financial accounting system. With this, pre-need companies will be required to maintain a "margin of solvency" as an indicator of their financial viability as a business establishment.

"Margin of solvency" is defined as the prescribed difference of the pre-need firm’s assets and liabilities.

All pre-need firms will also be compelled to maintain a P100-million paid-up capital to ensure that they can meed their obligations to planholders.

The bill also seeks to adopt a licensure of sales agents and the registration scheme of all sold pre-need plans to ensure that pre-need firms are fit to engage in the business.

Under the licensing requirements for pre-need firms, the commission "shall have the power to impose eligibility requirement for directors, officers, management, controlling shareholders and related interests of the foregoing, to ensure that pre-need companies observe corporate governance principles, in accordance with international best practices.

Those who will be found operating not under he prescribed criteria of IC shall, be fined as much as P5 million, and imprisoned for a maximum term of 21 years, upon the courts’ discretion.

The bill likewise seeks to regulate the marketing of pre-need products such that all advertising materials of pre-need firms need to get approval from the Insurance Commission before they can be released. Any pre-need firm found selling plans through an unapproved advertising material will have its license revoked.

The bill is a consolidation of five separate bills filed by Reps. Magtanggol T. Gunigundo I of Valenzuela City, Jose Clemente S. Salceda of Albay, Jesli A. Lapus of Tarlac, Rolex T. Suplico of Iloilo and Michael John R. Duavit of Rizal.

Consumer groups such as Nationwide Association of Consumers, Inc. and Coalition for Consumer Protection and Welfare have called for strict pre-need regulation to protect planholders in the wake of reports that seveal pre-need firms have been incurring trust fund deficiencies.

Pre-need companies are firms issuing to provide payment or performance of future services or monetary considerations at the time of actual need. Pre-need plans include life, education and pension plans.