Pre-need industry sees good prospects in 2006
Philippine Information Agency
Jan. 25, 2006
By Minerva BC Newman
Cebu City (25 January) — The year 2005 was a tough year on the pre-need industry but it remains unfazed instead, sees a growing market this year.
Jesus Hofileña, a member of the board of directors and one of the spokespersons of the Philippine Federation of Pre-Need Companies (PFPC) said, the pre-need industries in the country are working together to improve and bring back public confidence and ensure survival in the aftermath of the industry’s slow growth last year.
“We have been going around the country for a massive information campaign, explaining the reasons behind the collapse and liquidity problems of some pre-need companies, specifically the College Assurance Plan (CAP) and Pacific Plans,” Hofileña added.
In a press conference at Casino Español in Cebu recently, the PFPC said, the pre-need industry is expecting a flat growth this year, but it is still optimistic for good market prospects as it is working closely with the country’s policy makers for the fast approval and implementation of the Pre-Need Code that is still in Congress. The Code aims to raise the level of professionalism in the industry and ensure its stability.
Hofileña also bared that there are more than five (5) million Filipino pre-need plan holders, 20% of these are into educational plans holding open-ended plans. Pension plans remained the dominant product in 2004 that accounted for about 60% of the total pre-need plans while education plans and life memorial plans accounted for 35% and 5% respectively. PhilAm Plans, the pre-need arm of the PhilAm Group of Companies, established its leadership in the industry accounting for 23.55% of the pre-need industry market sales.
Hofileña further explained, the industry’s slump growth in 2005 was mainly due to the public’s negative reaction on the CAP and Pacific Plans issues. He said, the financial crisis these companies experienced was largely because they were selling open-ended educational plans, which is what the majority of the pioneers in the pre-need industry sold.
Open-ended plans, he continued, obligates the company to pay plan holders the prevailing tuition (in case of educational plans) on the plan’s year of maturity, regardless of the premium paid. “This type of contract put the pre-need industry at a disadvantage when inflation rose and tuition fees skyrocketed,” Hofileña explained.
Political crisis and the decreasing number of licenses of pre-need companies renewed by the Securities and Exchange Commission (SEC) can also be mentioned as contributing factors in the slowdown in the industry’s sale performance, the PFPC said.
The pre-need industry learned its lessons well. Because of the CAP and Pacific Plans debacle, the industry instituted changes and proposed several measures that would regulate its operations, to wit:
- The pre-need companies now are selling fixed plans i.e. giving the plan holders a fixed amount upon the maturity of their plans.
- The industry proposed a measure that would dictate who sill sit in the board of directors of pre-need companies and require the firms to maintain transparency to avoid corruption
- Implementation of a risk-base capital computation. It seeks to require the pre-need companies to put up a base capital commensurate to their size and the numbers of plan holders they serve, instead of a minimum base capital.
- A regulation that seeks to increase the amount that each pre-need company must set aside as trust fund, that can be used to pay the obligations of the pre-need firm to its plan holders.
In conclusion, the CEO of PhilAm Plans assured its more than 300 thousand clients that it can meet its contractual obligations, with the company’s more than P19-Billion trust fund, “we can pay all benefits due today and up to 2013,” Hofileña proudly said. (PIA-Cebu)
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