Financial state of preneed firms

IN TWO weeks’ time, thousands of primary, intermediate, senior high and college students will go back to school. The K-12 program of the Department of Education will now be implemented.

For parents who bought preneed education plans for their children from companies that have closed shop or applied for rehabilitation, this is an emotionally wrenching period.

It will remind them of the sacrifices they made and the comforts they gave up so they can pay the premiums of their preneed plans, only to learn later that the preneed companies absconded with their money or made bad investments.

To add insult to injury, not one of the people responsible for this fiasco has been held civilly or criminally accountable for their acts. They laughed—and continue to laugh—their way to the bank with the hard-earned money of their hapless victims.

Some even had the gall to represent themselves as businessmen who can turn around distressed companies, or give financial advice to overseas Filipino workers.

They’re no different from married priests defending the value of celibacy or prostitutes extolling the virtues of virginity.

Bankruptcy

The website of the Insurance Commission (IC) shows that, to date, 14 preneed companies are licensed to offer and sell education, life and pension plans. Of this number, only seven are allowed to include education plans in their basket of plans.

Prior to the enactment in 2009 of the Pre Need Code (Republic Act No. 9829), there were some 200 companies engaged in the preneed business in the country.

After College Assurance Plan went bankrupt in 2008 and filed for rehabilitation (still pending with no assurance that it will have a favorable ending), several other preneed firms followed suit.

Their owners blamed poor investment opportunities, unfavorable business conditions and strict government regulations for the collapse.

They avoided citing their bad business decisions, profligate lifestyle and treatment of the companies’ coffers, including the trust fund which is mandated by law to be for the exclusive benefit of the plan holders, as their personal piggy bank.

From then on, it was downhill for the preneed industry. With the public looking at preneed firms with suspicion, some analysts described it as a “sunset industry.”

Statements

Recently, the IC ordered preneed firms to post, starting November, in their websites the following information: latest approved annual statements, latest approved consolidated statement of trust fund, and audited financial statements filed within the past 30 days with the Bureau of Internal  Revenue.

The websites should also contain an updated list of company directors and executive officers, addresses of main office and branches and latest certificate of authority.

With this information, the planholders can monitor the financial health of their preneed companies, assuming the data will be true.

Failure to comply with the order could result in the imposition of a fine of at least P50,000, on top of the basic penalty of P10,000 and P5,000 monthly thereafter if the required information is not posted.

Considering their hefty assets, the fines are chicken feed, so to speak. They can pay the fines without batting an eyelash.

No doubt, the circular was issued with good intentions, but it skirts the question of what a plan holder can or should do in case he sees red flags that indicate his preneed company is engaged in activities that could lead to financial trouble, e.g., risky business investments and high operating costs, or is on its way to bankruptcy.

Consequences

There are three things a plan holder can do if, based on the financial figures posted in the company’s website, there are telltale signs it is not managing its affairs properly or is flirting with financial distress.

He can get in touch with IC or the preneed company to bring to its attention his concerns; continue to pay the premiums as they fall due and pray that things will turn out well, or suspend the payment of premiums until he is satisfied that the company is back in shape.

If he takes up the matter with IC, chances are he will be told it would look into it and revert to him later. Knowing the way things move in the government, he can only hope something productive will come out of his action.

If he calls the preneed company, in all probability he will be given a song and dance and told there is nothing to be worried about and that the company is doing well.

At the end of day, the planholder will have to decide on what to do in case his preneed company appears to be having some financial problems.

To continue paying the premiums despite the red flags would be like throwing good money after bad. If the company later sinks, his premium payments will go down with it. He can only hope that, upon its liquidation, he will be “substantially” compensated for his belief in its financial health.

On the other hand, if he suspends his premium payments, he risks having his plan cancelled for failure to pay the premiums and, as a result, forfeit its benefits.

In case of liquidation, he will not be entitled to a proportionate return on his premium payments because his plan has been terminated. Assuming that, by some streak of benevolence, the company gives a residual value to his plan, he may have to wait after all current plan holders have been paid and pray that some crumbs are still available for distribution.

For information purposes, the website requirement looks good. But whether or not it will redound to the best interests of the planholders is a big question mark.

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