Article 30

BusinessMirror Opportunities in the preneed industry

http://www.businessmirror.com.ph/opportunities-in-the-preneed-industry/

Opportunities in the preneed industry Category: Opinion 30 Sep 2014 Written by Soledad A. Sanchez

WHEN you hear about the preneed

plans being offered today, do you

find yourself asking the difference

between it and a regular life-

insurance product, or even wonder

if theyre the same?

People find it a little confusing as to what the real difference between a preneed

plan and a regular life-insurance policy is. Life-insurance products provide a fixed

amount of consideration upon the maturity of the plan or the death of the

policyholder, while a preneed plan gives its planholders the guaranty of

answering the expenses for a specific purpose (i.e., education, memorial and/or

pension) at the time of actual need or on an agreed maturity date, in exchange

for cash or installment amounts.

In the Philippines companies offering preneed products are called preneed

companies. A preneed company is a corporation registered with the Securities

and Exchange Commission (SEC) and placed under the supervision and

regulation of the Insurance Commission (IC) upon the effectivity of Republic Act

9829, also known as the Preneed Code of the Philippines, in 2009.

The preneed plans offered by preneed companies in the Philippines are: 1) the

educational plan, which includes the coverage of the education expenses of a

beneficiary; 2) the pension plan, which includes a fixed-value plan, with

guaranteed interest income upon maturity; and 3) the life plan, which includes the

coverage of memorial services when the beneficiary dies.



Through the years, the sudden growth and significant decline of preneed

companies have been observed. Of the more than 200 companies offering

preneed insurance in the 1990s, fewer than 20 remain. Two major reasons are

being pointed out for the decrease in the number of players, especially those

offering educational plans. The first is the open-ended feature of preneed

educational plans that involves the coverage of the entire tuition in the future,

regardless of the amount due; and the second is the 1997 Asian financial crisis,

which caused a significant decrease in the interest yield of the trust-fund

investments of the preneed companies. These led smaller preneed companies to

immediately close down and, in the long run, resulted in the fall of some of the

industrys major players, such as College Assurance Plan and Pacific Plans in

the mid-2000s and, just recently, Prudential Life Plans Inc.

Notwithstanding the risks faced by the industry, the preneed business remains to

be an attractive investment venture, as people continue to look for security on

future needs. The continued growth of the Philippine economy, the publics

increased awareness as a result of the ICs financial-literacy campaign and the

losses suffered from recent disasters may be considered as possible reasons for

the industry to be eyed as a valuable investment and protection for future needs.

The last three years saw the Philippine labor force increase by 2 percent.

Ongoing talk about raising the official retirement age from 60 to 65, as well as the

increase in enrollments in the past five years by an average of 3 percent,

presents a very huge opportunity for the preneed industry. The positive outlook of

the Philippine economy in the next few years and the publics improved

awareness of the industry contribute to the positive impact on the industry.

The industrys growth strongly relies on trust and confidence. We can deduce

from the Philippine experience that the unrestrained behavior and insolvency of

one or two preneed companies can have serious repercussions on the whole

industry. The enactment of the Preneed Code, which serves as the legal

framework for the stringent and closer regulation and examination of preneed

companies, concretized and answered the need for sound rules, and for



regulatory and supervisory structures that will govern the activities of preneed

companies. It also assured the stability of the industry, and, at the same time,

protected current and future planholders.

Aside from the transfer of regulatory and supervisory jurisdiction over the

preneed industry from the SEC to the IC, another highlight of the Preneed Code

is the capitalization requirement for preneed companies, which aims to give

better security and the assurance that the future obligations or liabilities of the

companies to planholders will be met.

Since 2010 the IC has been actively developing and promulgating policies and

procedures for the better supervision and regulation of the preneed industry.

Ever mindful of its mandate, the IC continues to supervise and regulate the

industry toward its fortification and inclusive growth, for the ultimate goal of

protecting and safeguarding the interest and welfare of Filipino planholders.

****

Soledad A. Sanchez is an Insurance Specialist I from the Preneed Division of the

Insurance Commission.

Article 30

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