Pre-need industry expects to recover this year

MANILA, Philippines - The pre-need industry, besieged by controversies and bankruptcies for the past five years, is looking ahead to better times in 2010 especially with the passage of the Pre-need Code of the Philippines into law.

Signed into law on Dec. 4, 2009, the Pre-need Code transfers the regulatory jurisdiction over pre-need firms from the Securities and Exchange Commission (SEC) to the Insurance Commission (IC).

Caesar T. Michelena, president of the Federation of Pre-need Plan Companies Inc., said the enactment of the Pre-need Code into law could pave the way for a recovery of the industry that has been hit by a slump in sales and confidence.

“The passing of the pre-need law is a start of “brighter days” for the pre-need industry and it will put to rest all fears of instability of the pre-need industry,” Michelena said.

The Pre-need Code lays down the guidelines for the operations of pre-need companies and the sanctions that will be imposed for any violations that may be committed. It aims to protect planholders and ensure the viability of an industry that has been weakened by a spate of bankruptcies and failures.

“The Pre-need Law provides stability to the pre-need industry because it legitimizes and puts into place the necessary measures needed by the industry,” Michelena said.

Michelena said the transfer of regulatory authority bodes well for the industry, noting that the Insurance Commission is more technically capable to oversee the operations of the multi-billion peso sector.

Among the other notable provision of the law is the adoption of the fit and proper rule which gives IC the power to prescribe the qualifications and disqualification of directors of pre-need companies.

To avoid conflicts of interest, the Code prohibits directors and their relatives within the fourth degree of consanguinity in their personal capacity to have direct or indirect investments in excess of P5 million in any corporation or undertaking in which the pre-need firm’s trust has an investment.

To safeguard the interest of planholders, no part of the assets in the pre-need firm’s trust fund can be used for any purpose other than for the exclusive benefit of investors.

To ensure the delivery of the guaranteed benefits and services provided under a pre-need plan contract, a trust fund per pre-need plan category shall be established. A portion of the installment payment collected shall be deposited by the pre-need company in the trust fund, the amount of which will be as determined by the actuary based on the viability study of the pre-need plan approved by the Commission.

The law states that pre-need companies must have a minimum paid-up capital of P100 million to lessen the risk of instability in the future.

Moreover, the code imposes strong criminal and administrative penalties on directors and officers for self-dealing and conflict of interest transactions.

“No pre-need company shall refuse, without just cause, to pay or settle claims arising under coverages provided by its plans nor shall any such company engage in unfair claim settlement practices,” the law states.

In case the insolvency or bankruptcy is a mere cover-up for fraud or illegality, the plan holder may institute the legal action directly against the officers and/or controlling owners of the pre-need company, the Code states.

For transparency, a pre-need firm is required to publish in two newspapers of general circulation a full synopsis of its annual financial statements, including the trust fund annual statement showing fully the conditions of its business, and setting forth its resources and liabilities in a standardized format to be designed by the Commission.

The Code also requires disclosure of the investment of the company’s trust fund.