Pass pre-need code now, Congress urged
A labor group slammed Congress on Sunday for the “unwarranted delay” in the passage of the Preneed Industry Code, which would protect planholders from financial failure and misreporting by insurance firms.
“We are saddened that up to now, legislators have yet to pass the proposed Preneed Industry Code. Meanwhile, tens of thousands of Filipinos, mostly salaried employees and overseas contract workers, have lost all, if not most of their savings invested in preneed firms that have failed,” the Trade Union Congress of the Philippines, through its secretary general Ernesto Herrera, said in a statement.
The delay, Herrera said, has been “definitely worrisome,” adding that up to now, planholders “have absolutely no protection whatsoever once the provider that sold the plan collapses,” as was the case with the failure of Legacy Consolidated Plans Inc. last December.
He said the lawmakers should move quickly to protect planholders from unnecessary risks and at the same time revitalize the preneed industry amid the global financial crisis.
“Preneed plans represent the hopes and dreams of hundreds of thousands of Filipinos for the college education of their children, or for their financial security upon retirement. And legislators are duty-bound to safeguard these hopes and dreams,” he said.
Herrera, citing the company’s website, said that when Legacy emerged in February 2003 as a result of the merger of Legacy Scholarship Pension Plans Inc. and Consolidated Plans Inc., it claimed a trust fund of P557 million and more than 100,000 education, pension and memorial planholders.
Herrera said that long before the 2004 collapse of College Assurance Plan Inc., Pacific Plans Inc. and some of their smaller rivals, a report by the Securities and Exchange Commission (SEC) had warned that the biggest threat faced by planholders was “the risk of insolvency of their providers and their respective trust funds.”
The labor leader said the SEC report, released as early as 2000, had warned that a number of firms had created “a smokescreen of faulty financial reporting, which prevented the early detection of their financial problems by regulators.”
The report noted that 35 percent, or at least 29 of the 83 preneed firms registered between 1977 and 1999, had curtailed their operations or closed shop, leaving tens of thousands of planholders holding an empty bag, according to Herrera.
The proposed Preneed Industry Code pending both in the Senate and House of Representatives puts in place a regulatory framework to ensure the industry’s long-term stability, protect planholders and thwart abuses such as self-dealing by a provider’s trustee or officer.
The bill affords protection to planholders through an insurance fund that would guarantee benefit payments in case a preneed firm collapses.
At present, unlike bank deposits, preneed plans do not enjoy insurance coverage.
The proposed code also mandates providers to deposit in a trust fund up to 60 percent of the money collected from planholders.
At present, providers are required to put in trust only 45 to 51 percent of collections, according to Herrera. The trust fund refers to assets reserved for benefit payments to planholders.
The proposed code also provides that supervision and regulation of the industry would be transferred from the Insurance Commission to the SEC, in view of the latter’s greater actuarial expertise and competence.
The bill imposes a minimum and unimpaired capital fund, trust funds and liquidity reserve requirements. It protects planholders from overpriced plans, fraudulent transactions and other abuses.
Due to dwindling public confidence, preneed industry sales had dropped gradually over the years, said the SEC.
Total sales declined to P18.9 billion in 2007 from P19.8 billion in 2006 and P20.5 billion in 2005.
In the 10 months to October 2008, industry sales fell another 20.8 percent to just P12.7 billion versus P16.05 billion in the same period in 2007. In the 10-month period, education plan sales alone plunged 51.8 percent to P1.59 billion from P3.3 billion in the same period in 2007.
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