Pre-need firms prefer IC as supervising agency

The Federation of Philippine Pre-need Plan Companies (PFPPCI) believes that the industry would be better off with the Insurance Commission, which is known for its no non-sense approach in getting things done.

PFPPCI president Juan Miguel Vazquez said the transfer of the pre-need sector’s supervision from the Securities and Exchange Commission to the IC, would be a good move because of the latter’s experience in overseeing insurance plans.

SEC was perceived to be lax in regulating the activities of pre-need plan companies, said to have caused the illiquidity of some pre-need firms. Some quarters said the SEC does not have the manpower available to properly oversee the multi-billion peso pre-need industry.

"The general public believes that the IC has more experience. So from that point of view, the transfer of the sector’s supervision to IC would be good for the industry. We’re not saying that the SEC has not done its job well. In fact, the SEC has improved a lot in regulating the industry," Vazquez said.

This was a turnaround from the Federation’s previous position that the SEC was the proper agency to monitor the activities of pre-need firms considering its technical expertise.

The sudden turnaround was blamed on the stringent rules imposed by the SEC especially those relating to investment portfolio and paid-up capitalization for pre-need plan firms.

The SEC, nevertheless, welcomes the prospect of transferring the regulation of the pre-need industry to the IC as this would allow the corporate watchdog agency to concentrate on capital market reforms.

Pending the passage of the law that will transfer its regulatory powers over the pre-need industry to the IC, the SEC is seeking stricter rules to make sure that pre-need firms can cover future claims of planholders.

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 contracts and in the case of education plans, tuition fee increases.

The Federation recently asked the SEC to relax its rules on the trust fund mix requirement to allow pre-need firms to invest in higher-yielding investments such as real estate loans.

According to the Federation, appraisal increment on real estate investment and stock appreciation in purchase of share should not be considered as investment because they are increments or appreciation of the investment made.

The FPPCI said the present value of investments shall be booked in the trust funds as of the date it is made.

Apart from this, the Federation has asked the SEC to give pre-need companies up to five years to cover any trust fund deficiency.The FPPCI has likewise asked the SEC to rename the term "trust fund deficiency" as trust fund variance or additional actuarial reserves because of its negative connotations.

The Federation said the public has miscconstrued the term "trust fund deficiency" to mean bankruptcy. This common misconception has made pre-need companies wary of the changes, the Federation said.

Pre-need companies are firms issuing plans 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.