Pre-need industry expects revival under new law

The pre-need industry is banking on the recently passed Pre-need Code to revive waning demand for its financial products after the industry was hit by aversion following the collapse of major players four years ago, the group’s president said at the weekend. Federation of Pre-need Plan Companies, Inc. President Caesar T. Michelena said the pre-need business, which has suffered a string of controversies since 2005, is on the road to recovery after President Gloria Macapagal-Arroyo enacted Republic Act 9829 last month. “The passing of the pre-need law is the start of brighter days for the pre-need industry and it will put to rest all fears of instability about the pre-need industry," Michelena said. The code regulates pre-need companies and provides for sanctions, in effect protecting plan holders and ensuring the viability of the industry, which for the past four years has been weakened by a spate of bankruptcies and failures fueled by the slowing global economy. A key provision in the law is the transfer of regulatory jurisdiction over pre-need firms to the Insurance Commission from the Securities and Exchange Commission, which Michelena said is more technically qualified to oversee the multibillion-peso industry. Under the law, the commission can prescribe the qualifications and disqualification of pre-need company directors. The law bars directors and their relatives within the fourth degree of consanguinity to have direct or indirect investments in excess of P5 million in any corporation or undertaking in which the pre-need firm’s trust fund has an investment. To safeguard plan holders, the law states that 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. Moreover, a trust fund per pre-need plan category will be set up to ensure the delivery of the benefits and services provided under a pre-need contract. The law further requires pre-need companies to have a minimum paid-up capital of P100 million to lessen the risk of instability. It likewise imposes criminal and administrative penalties on directors and officers for self-dealing and conflict of interest. “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. To ensure transparency, a pre-need firm is likewise required to publish in two newspapers its yearly financial statements, showing fully the conditions of its business and disclosing its resources and liabilities in a standardized format to be designed by the commission. “The law provides stability to the pre-need industry because it legitimizes and puts into place the necessary measures needed by the industry," Michelena said. Industry sales have been on a downward trend due to loss of investor confidence. Based on the latest data provided by the Securities and Exchange Commission, the number of plans sold from January to August slid by more than a quarter to P6.25 billion, with pension funds taking the biggest hit, followed by education and life plans. — Kristine Jane R. Liu, BusinessWorld