Pre-need sector moves closer to setting up protection fund

The pre-need industry has stepped closer to putting up an additional fund for planholders similar to the Philippine Deposit Insurance Corp. which insures bank deposits up to P100,000.

Philippine Federation of Pre-Need Plan Companies Inc. president Juan Miguel Madrigal Vazquez said a recent survey of members showed that most of them are for putting up the so-called protection fund to complement the trust funds that are already in place.

"This is double protection for our planholders. While we plan to put up this fund on a voluntary basis, we expect all of our 45 members to join eventually because no one, for sure, would want to be left out," he said.

The additional fund was proposed by government and consumer groups. Vasquez said his federation is looking at every measure to protect planholders.

"Like banks, we operate and thrive on public trust. We are a young and vibrant industry with so much growth potential and we want to strengthen that trust," he said.

Right now, the whole industry has about P37 billion in trust funds to cover maturing plans in the coming years.

"An additional fund would actually tell our planholders that it might be more prudent to put their money in a pre-need company for their and their children’s future than elsewhere," he said.

Pre-need companies sell pension, life, and educational plans, the last category, which started it all, now having the smallest piece of the marketing pie.

Educational plans were the first plans to be sold 35 years ago. Back then, when tuition was regulated and yearly increases were predictable, open-ended plans were the most saleable.

But with deregulation, tuition that was projected by pre-need companies to amount to only P50,000 upon maturity soared three or more times. Despite the loss, pre-need companies covered the plans using their trust funds.

Now, open-ended plans are hardly offered and, if at all, cost more than fixed-value plans, the more popular of the two these days. Fixed and predictable costs have removed financial surprises which, in the past, resulted in deficiencies.

"Fortunately, only two pre-need companies have remaining trust fund deficiencies as a result of the shift from open-ended plans and various other reforms, and these deficiencies are expected to be filled in the next two months," he said.

At any rate, Vasquez said combining the trust funds and the protection fund would all the more make pre-need plans more attractive since they would be solid investments that could yield more through time for the planholders.