Philippine Federation of Pre-Need Plan Companies, Inc.
Pre-Need Forum
3 February 2010, Makati Shangri-la

The pre-need industry faced another challenge in the form of the global financial crunch. Industry performance has reportedly suffered as a result of widespread uncertainty. In addition, the industry had been under fire with the closure of the Legacy Group last year, which owns several rural banks and pre-need businesses in the country.

The sad fact is that insurance coverage is very low in the country - yet it is one of the world's most disaster-prone areas. It is also a country where personal savings are low and where many depend solely on monthly income to cover their regular expenses. But in the event of the unexpected, many are left helpless and miserable.

Life insurance penetration at 0.87 of GDP makes us the second lowest in Asia and among the lowest in the world in terms of insurance coverage. Perhaps this means that its value is less appreciated in the Philippines than the rest of the world. In more developed nations, insurance is a necessity in financial risk management.

But what many Filipinos do not realize is that the pre-need sector is vital not only to the country's financial sector but to an individual's welfare as well. There is great economic value in fostering it and ensuring its survival. We should not let the industry as a whole be dragged down by a few troubled firms. Despite the credibility issues that are crippling the industry, we should keep a sober and informed view.

The pre-need industry is the biggest accumulator of savings, an important factor in building a strong capital market. Moreover, the industry contributes around P1.5 billion in value-added tax, in addition to the P1.3 billion in withholding taxes contributed to the government out of its trust funds.

But most importantly, pre-need companies help realize a Filipino parent's deepest aspirations - education for their children, health care in times of illness, pension upon retirement, memorial service upon one's demise. Pre-need plans, for example, have become a family's popular option for ensuring the education of their children, especially after the enactment of the Education Act in 1982 which pried the doors open for sharp tuition increases.

Policymakers are duty-bound to come to the industry's rescue by instituting effective regulation and mechanisms that would prevent future problems. That is why we passed the Pre-need Code or RA9829, which provides the much-needed regulatory framework and institutional solution to the industry's major stumbling blocks. Its aims are two-fold: protect the planholders and at the same time keep the pre-need industry viable.

Creating a solid framework which places the operation of pre-need companies on sound, stable and sustainable ground is the best protection we can extend to planholders and the best way to keep the industry viable. This is a long-term, tangible solution to the problems of the industry, as opposed to the empty talk by some politicians and wannabees who feast on it in the glare of TV lights.

The law requires pre-need companies to have a minimum paid-up capital of P100 million to provide a solid capital base and lessen the risk of instability in the future. To professionalize the industry, a Fit and Proper rule shall be imposed on elected or appointed directors and officers of pre-need companies.

Among other strong safeguards and precautions, its best feature is the Trust Fund model, where a portion of the payment collected by the preneed company will be deposited in a trust fund. This would help guarantee the delivery of benefits to the planholder in the future, and minimize the risk of insolvency as the trust fund will remain untouched until the plan matures.

For transparency, the law requires that the contributions to the trust fund be properly disclosed to the planholders. Under the Pre-need Code, companies are required to make their financial condition regularly examined, and an annual statement published.

For planholders who become hard up to pay their installments, a pre-need company shall provide a grace period of at least 60 days to pay unpaid dues. If he/she is still unable to pay within this period, and the plan is rendered ineffectual, the plan holder is given two years to reinstate the plan.

Pre-need plans are also prohibited from refusing to pay or settle claims and benefits to their planholders without just cause. The proceeds of the plan shall be paid immediately upon maturity of the contract, except in the case of installments or annuity, in which case they will be paid when they become due. Failure to pay the claim within 15 days from maturity will entitle the beneficiary to collect interest on the proceeds at twice the interest.

Considering the vital role the pre-need industry plays - and the imperative to protect the investing public - the law assures the proper governance of the operation of pre-need companies, regulation their activities, and their liquidity and solvency for the protection of their planholders.

We are placing the operation of pre-need companies on sound, stable and sustainable ground. What we are trying to change is the unregulated anything-goes regime that has created the problems in the first place

More importantly, pre-need companies exist to provide insurance for the education, health and other vital needs of its 3.8 million planholders, and thus fills the void that government cannot fill. Hence, we must ensure that they flourish for years to come.