Press Release
September 9, 2009

Armed with sound and sustainable regulatory framework
APPROVAL OF PRE-NEED BILL WILL BENEFIT PLANHOLDERS
AND PRE-NEED INDUSTRY - ANGARA

Senator Edgardo J. Angara today convenes Senate and House Reps for a bicameral conference on the Pre-Need Code to establish a sound and sustainable framework that would regulate pre-need companies and, more importantly, protect the interests of plan holders. This he said would provide the pre-need industry its much needed lift.

"The pre-need sector is a vital part of the national economy, and it has yet to realize its full growth potentials. The regulatory framework, in turn, will provide the environment that will allow the pre-need firms to be stronger, bigger, and more stable so that in turn could protect the public who invest in these pre-need companies," said Angara who chairs the Senate Committee on Finance.

Senate Bill 2077 or the pre-need code of 2008 was sponsored by Angara on the 13th of February last year. It passed the Senate's third reading on the 11th of June 2008 and finally just last month of this year it was passed in Congress.

In recent years, the country saw the downfall of several pre-need companies, including major industry players and pioneers. The major factor that caused the failure of some companies is the issuance of traditional educational plans which consist of 21% of the total number of plans sold as of 2003.

Under a traditional educational plan, the issuing pre-need company guarantees the payment of the actual cost of benefits or services promised regardless of the increase from the originally assumed values.

The deregulation of tuition fees in 1992 resulted in the unforeseen tremendous increase in the obligations of Pre-Need Companies. Such incidents and actions have not been properly regulated by the SEC for a long time in view of the lack of funding and regulatory framework for the industry.

The industry problems were highlighted when the SEC implemented prudential rules for the industry, particularly the inclusion of the Actuarial Reserve Liability in the financial statements of the company. Such inclusion of the ARL showed that some companies do not have enough assets to pay off their future obligations to the plan holders.

The liquidity problems and trust fund deficiencies encountered by a number of pre-need companies as well as the filing of Petitions for Rehabilitations are the most glaring manifestations of the growing problems of the industry.

Considering the importance of the pre-need industry to the average Filipino and to the government, it should be given utmost attention. The industry should be saved from the danger of extinction brought about by problematic pre-need companies.

SB 2077 aims to protect the plan holders and keep the pre-need industry viable.

The bill 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.

A Fit and Proper rule shall be imposed on elected or appointed directors and officers of pre-need companies, where they must meet qualifications based on integrity, experience, education, training and competence.

Sales counselors shall not be allowed to solicit or sell pre-need plans without a license.

The bill also adopts the Trust Fund Model from which the Insurance Commission shall serve as the supervisory and regulatory body as agreed by both panels. It is its strongest safeguard against insolvency.

Under the Pre-need Code, companies are required to make their financial condition regularly examined, and an annual statement published.

"What we are trying to change is the unregulated anything-goes regime that has created the problems in the first place. Pre-need companies exist to provide insurance for education, health and other vital needs of its plan holders. Hence, there is great economic value in fostering the pre-need industry and ensuring that they flourish for years to come," added Angara.

The swift reconciliation of the Bicam will propel the immediate passage of this bill and our pre-need industry and plan holders are assured of protection and a viable industry.

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