Pre-Need Code hurdles 2nd reading

The Senate has passed on second reading the bill that would impose stricter guidelines on pre-need companies to protect policy holders from being defrauded.

“The Pre-Need Code is as good as passed. There is now a ruling or governing legal framework for the industry. Before, there was no system and it was more like an ‘anything goes’ attitude. But now, we have safeguards,” Sen. Edgardo Angara, chairman of the Senate committee on banks, financial institutions and currencies, said.

According to Angara, the Pre-Need Code also contains a body of disclosure rules. For transparency, the bill requires full disclosure of the company’s  income as well as its contributions to the trust fund.

“Also, salesmen ought to undergo a licensing exam before they can sell a pre-need plan. With many safeguards in place, I think the chance of pre-need companies to become insolvent is nil. The industry will now become stronger and planholders can now sleep safely,” Angara said.

He said the industry would now be governed by the Securities and Exchange Commission (SEC), saying that “pre-need is more like buying a security than an insurance policy.”

Under Angara’s bill, pre-need companies must have a minimum paid-up capital of P100 million to provide a solid capital base and lessen the risk of instability in the future.

For planholders who become hard up to pay their installments, a pre-need company shall provide a grace period of at least 60 days to pay unpaid dues. If he/she is still unable to pay within this period, and the plan is rendered ineffectual, the planholder is given two years to reinstate the plan.

The minimum contribution of a pre-need company to the trust fund is 45 percent of the amount collected for life plans, and 51 percent for all other types. The trust fund may be invested in fixed income instruments such as government securities, savings or time deposits, commercial papers or direct loans, mutual funds, equity investments in stocks, and real estate.

Sen. Manuel Roxas II said the passage of the Pre-Need Code is a welcome development because it would protect especially those who would avail of education plans.

There are now prudential measures, Roxas said, unlike in the old Securities Regulation Code, where the regulation on pre-need was one paragraph.

“Now we’re up to 40 pages. The securities that a trust fund can invest in were listed. Number one, for every plan you buy, for every premium payment, the  specific percentage of how much should be placed in the trust fund is clear,” he said.

Another salient point, Roxas said, is that the pre-need company must not have any connections with the managers of the trust fund.

“This is not like before wherein the owner of CAP (College Assurance Plan that collapsed) also owns or has interest in the trust fund department of the bank managing the trust fund of the company,” he said.

“This is an example of a prohibition, there is also provision wherein the pre-need company is required to be ready with the cash a year before its obligations. They should not scramble for funds, this is what you call liquidity fund,” Roxas said.

Roxas said the stringent provisions would hopefully prevent, if not totally eliminate, fraud in the pre-need industry.