Keeping the Philippine pre-need industry viable

Pre-need plans are designed to 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.

To many, however, the unexpected collapse in 2005 of the first pre-need firm in the country - Pacific Plans Incorporated (PPI) - following the same fate of industry leader College Assurance Plan (CAP) had shaken the industry and caused serious grief and loss to countless parents. Numerous protests were launched due to unpaid claims of thousands of planholders.

The main reason cited for the business failure is the so-called traditional educational plans. Under a traditional educational plan, the pre-need company agrees to pay the tuition charged by the school at the time the claim is made. It amounted to an open commitment, so when the deregulation of tuition fees occurred in 1992, there was a tremendous increase in the tuition obligations of pre-need companies.

Poor management and unsound investment decisions made by some pre-need companies exacerbated the problem. In the absence of a clear regulatory framework, these mismanagement acts escaped monitoring and prevention.

Last week, I sponsored in the Senate the Pre-need Code of 2008. Its aims are two-fold: protect the planholders and at the same time keep the pre-need industry viable. What we need is an institutional solution to the problem of the pre-need industry.

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.

The best protection we can extend to planholders is creating a solid framework which places 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. There is great economic and social value in fostering the pre-need industry and ensuring that they flourish for years to come.