Pre-need firms see ‘brighter days’ with passage of law

Companies

Written by Miguel Camus / Reporter

Sunday, 03 January 2010 20:34

The passage of a new law that will govern the operations of pre-need companies—and impose sanctions on erring firms—is being hailed by industry players as the start of “brighter days” for the sector. On December 4, President Arroyo signed into law Republic Act 9829, also known as the Pre-Need Code of the Philippines. Federation of Pre-Need Plan Companies Inc. (FPPCI) president Caesar T. Michelena believes that the pre-need business—which suffered a string of controversies since 2005—is on the road to recovery. “The Pre-Need Law provides stability to the industry because it legitimizes and puts into place the necessary measures needed by the industry, Michelena said in a statement, as he noted that the law will lay to rest fears of instability in the pre-need industry. The code seeks to protect planholders and ensure the viability of an industry that has been weakened by a spate of bankruptcies and failures fueled by the worldwide economic slowdown. Sales of the industry have been on a downward trend for the past four years due to loss of investor confidence. A key provision in the law is the transfer of regulatory jurisdiction over pre-need firms from the Securities and Exchange Commission to the Insurance Commission (IC). Michelena said the federation welcomes the transfer of regulatory jurisdiction to the IC, pointing out that the latter is more technically qualified to oversee the operations of the multibillion-peso industry. Among the other notable provisions of the law is the adoption of the fit and proper rule which gives the IC the power to prescribe the qualifications and disqualification of directors of pre-need companies. To avoid conflicts of interest, the code prohibits directors and their relatives within the fourth degree of consanguinity in their personal capacity to have direct or indirect investments in excess of P5 million in any corporation or undertaking in which the pre-need firm’s trust has an investment. To safeguard the interest of planholders, no part of the assets in the pre-need firm’s trust fund can be used for any purpose other than for the exclusivebenefit of investors. To ensure the delivery of the guaranteed benefits and services of a pre-need plan contract, a trust fund will be established for every plan category. A portion of the installment payment will be deposited by the pre-need company in the trust fund, the amount of which will be based on a viability study of the pre-need plan. The law states that pre-need companies must have a minimum paidup capital of P100 million to lessen the risk of instability. The code also imposes strong criminal and administrative penalties on directors and officers for self-dealing and conflict of interest transactions. “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. In case the insolvency or bankruptcy is a mere coverup for fraud or illegality, the planholder may institute the legal action directly against the officers and/or controlling owners of the pre-need company. For transparency, a pre-need firms is required to publish in two newspapers of general circulation a full synopsis of its annual financial statements, including the trust fund annual statement showing fully the conditions of its business, and setting forth its resources and liabilities in a standardized format to be designed by the IC. The code also requires disclosure of the investment of the company’s trust fund.