Pre-need business needs public trust

Should customers be punished for a company’s wrong business plan? That is the core of a tiff between Pacific Plans Inc. and thousands of holders of its pre-need education plan.

Pacific has won a court stay from paying obligations to 34,000 plan holders who had bought education insurance in the ’80s. It said that things were going well back then, with everything actuarially calculated to work in the future because of a predictable government limit on yearly school tuition hikes at only 10 percent. But when government lifted the ceiling in 1990, everything went haywire. Pacific’s reserves, although in the billions of pesos, will no longer suffice to cover tuitions that have since risen 15-fold. To cover its obligations, Pacific asked for a five-year payment moratorium until 2010, with yearly interest of 7 percent until all payouts are made good.

Phooey, cry 2,000 parents who met at the St. Paul’s College-Pasig gym last weekend. It’s not their fault that tuition ceilings were blown off. They bought the plans back then believing they could cash in when the time comes, at today’s tuition rates, no questions asked. Pacific should not have bitten more than it could chew. But since it did, it must spit out what’s left, plus more, to cover all commitments. Making them wait five years for enrolment cash they need here and now would mean having to borrow elsewhere, at higher interest than the dangled 7 percent.

The Makati court is set to hear the plan holders’ side in May. The case, however, has put the entire pre-need industry in question. Finance Secretary Cesar Purisima has asked the Securities and Exchange Commission to investigate Pacific’s investments and management practices to determine any corporate wrongdoing. He and many business leaders also have been calling for the transfer of pre-need businesses under the regulation of the Insurance Commission instead of the SEC.

Earlier the bigger and older College Assurance Plan Inc. similarly fell into dire straits. Citing the same 1990 abolition of tuition ceilings, its checks for 2nd-semester tuitions bounced in November. Irate plan holders went to court and to newsrooms to complain. CAP’s response – to search for white knights to help recapitalize the company – has been more acceptable.

Years ago the pre-need industry came under fire when several health plan sellers faltered on promises to cover medical, hospital or lab-test costs. Many of them collapsed under the weight of debts; others merged, though still unrepentant in pledging the moon and the stars to prospective buyers. To this day, many doctors and hospital owners regard health insurance as a racket and have called for greater regulation, if not outright abolition.

Scrapping pre-needs would be too late. There already are thousands of expectant plan-holders. Regulation and competition are surer guarantees for the industry to shape up. And that’s exactly the point of Pacific holders, who want it to face up to instead of run away from obligations. They see corporate hanky-panky in Pacific’s transfer of its reserves to a subsidiary just before announcing the near-bankruptcy. The company is denying it, of course, but the accusation is precisely why the SEC should step in.

The legal tussle will boil down to interpretation and jurisprudence on contracts. But prolonged legal battle will hurt the entire pre-need trade. Customers will begin to suspect that all sales pitches will stop at nothing to get their money, then stop at nothing again to get out of promises. The issue can turn to the most basic element of business: trust.

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It’s usual for fresh grads of UP-Law to partner together with dreams to become a legal institution. But few endure. One such is Carpio Villaraza Cruz, today called Villaraza Angangco, though better known to admirers and hecklers simply as The Firm, which celebrates its 25th year this week.

The title of "The Firm" is a tribute to its success in conventional and non-traditional law practice. It holds a standing for being tops in litigation. Aside from corporate and trade law, it has advised two presidents: Fidel Ramos in 1992-1998, and Gloria Arroyo from 2001 to the present. It has helped fracture monopolies in telecommunication, banking and insurance.

What sets it apart is The Firm’s contribution to government service. Antonio Carpio was appointed Supreme Court justice in 2001 after serving the Ramos administration in various capacities, including presidential chief legal counsel. The sixth-placer in the 1975 bar exams, he obtained his UP-Law degree in the same year as valedictorian and cum laude. Avelino Cruz Jr. was Arroyo’s chief legal counsel before his appointment to Secretary of Defense. He too was cum laude and salutatorian of UP-Law in 1977, had placed seventh in the bar exam, is a member of the New York Bar, and was president of the Philippine Bar Association.

Ombudsman Simeon Marcelo, a former partner, was handpicked by Arroyo for the anti-graft body after a stint as Solicitor General. He ranked fifth in the 1979 bar test, after seminary and then law schooling. Joe Nathan Tenefrancia also served as Arroyo’s chief legal counsel before becoming senior deputy executive secretary. He was UP-Law’s salutatorian in 1991.

At the helms of The Firm since its rapid growth in the early ’90s is managing partner F. Arthur Villaraza. Nicknamed Pancho Villa(raza), he has mentored dozens of partners, some of whom have moved on to form their own firms in the country or abroad, or branched out to other fields. He graduated third in UP-Law 1975. Assisting him is Reggie Angangco, one-time president of the Integrated Bar of the Philippines, and UP-Law 1980 valedictorian. Together they lead The Firm of 60 lawyers. No matter what detractors say, industry leaders, decision makers and top politicians seek their counsel.

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