Insurance, pre-need scam: A public-private partnership

Last week’s column discussed three parallels between the much-condemned pork-barrel scam and the unjust/unfair treatment, via varied schemes, by certain insurance and pre-need companies of their policy/plan holders. 

Both scams deal with public money, both bare the selfishness and greed of the parties involved, and both expose how inept and prone to collusion are government regulatory and supervisory entities.

These parallels lead to a distinct perception, or conclusion, that the equivalent scams assume the character of a public (meaning government) and private sector partnership in malfeasance, leading to crime.

A fourth parallel has developed, in light of the nationwide impact of the huge August 26 Luneta Park gathering of people demanding the pork barrel’s abolition and the prosecution of those accountable for the scam. This has encouraged the victims of the insurance and pre-need companies to take bolder actions than what they initially took.  

For instance, a leading group of Philippine Prudential Life Insurance Co. planholders will meet next week with their lawyers to discuss and approve three legal actions. (They invited me to attend the meeting, and I have accepted, to hear more of their complaints.)

Last July 10, over 100 PPLIC planholders trooped to the Insurance Commission to complain against the firm’s terminating the benefits of their paid-up policies for an education plan and a so-called insurance-protector plan.  They demanded full recovery, at least, of their paid-up premiums. PPLIC has offered to return only 30%.

The planholders also questioned why the IC, while allowing their benefits to be terminated, had allowed PPLIC to continue to operate with license and sell its insurance and pre-need products. That’s duping the new and potential planholders, they said.

In the case of the Prudentialife Plans, Inc. (no relation to PPLIC), the aggressive actions of its  victimized planholders have led to an IC liquidation plan, wherein the planholders may be afforded a bigger chance to recover their money. They got that concession from the IC through a House of Representatives committee hearing last May.

For incurring trust-fund deficiencies that ballooned from P7 billion in 2009 to P11 B in 2011, PPI was placed under IC rehabilitation in 2012.  Failing to get any investor to infuse additional capital, the IC decided to liquidate PPI in March 2013. The planholders’ lead group acceded, provided that assets of the firm’s 13 subsidiaries would also be sold and the proceeds given to them.

The PPI liquidation was to have proceeded in its first phase, starting last Aug. 15 and ending on Sept. 12, 2013 with 250,000 qualified planholders (out of 300,000) sharing the proceeds of the sale of P5.3-B liquid assets.  For the second phase, the IC has two years to dispose of P3.1 B non-liquid assets and allocate the proceeds among the planholders.

 It is in the case of the National Life Insurance Co. that government-private sector collusion appears most evident.

As pointed out in two previous column pieces, the IC’s unexplained leniency towards NLIC since 2002, when the company breached the required margin-of-solvency level in its financial status, enabled the latter to continue to operate and victimize the people who bought and paid for its products.

Let’s briefly review the NLIC case.

• Over 3,520 policyholders with 9,860 life-insurance policies are at risk of losing P2.1 billion in money-market-like investments under a 12-15% interest rate deposit of future premium, called Premium Deposit Fund. The PDF can be withdrawn and not subjected to withholding tax.

Aggressive marketing and the attractive rates induced many NLIC policyholders and new ones to avail of the PDF, to the point of exceeding the level of future premiums “payable beyond the maturity dates of the life-insurance policies written.”   

• Unable to find matching investments with yields higher than PDF interest rates, NLIC accumulated unpaid PDFs reaching P2.1 billion.  It failed to comply with a 2006 IC circular requiring insurance firms to refund PDF deposits in excess of total future premiums due. But it wasn’t penalized.

• With a rush of PDF withdrawals, the IC placed NLIC under a conservatorship disguised to hide the firm’s bad financial state;  it named Isagani de Castro as conservator with the title of President-COO, replacing Benjamin L. de Leon. 

To fund the withdrawals, the firm used new deposits in a Ponzi-like scheme. That didn’t work.  Until early 2009 withdrawals rose to P1.9 B, as NLIC continued to sell PDFs.

• When de Castro resigned on Sept. 15, 2008, he intimated that NLIC had “violated prudent risk-management standards and the regulator (IC) was also at fault for having allowed this unlimited accumulation of future premiums.”

Altogether, the IC has so far appointed five conservators.

• Among them, the policyholders consider the fourth conservator, Senen Glinoga, as the only one sympathetic to their plight. But he was removed allegedly for making decisions unwelcome to the NLIC owners, such as cutting by half the P475,000 monthly salary as vice president of a de Leon relative, when the firm wasn’t doing business. 

Glinoga believed the company should have been placed under receivership in 2006 and thereafter placed under liquidation to forestall further losses.

Why NLIC remains under conservatorship until now is the big question that the IC must answer.  

*      *      *

Email: [email protected]