Policy-holders fail to receive funds

Celia Tuazon and her husband, Ruel, an overseas worker based in Taiwan, have been saving for the past 17 years for the education of their eldest son, Rene.

Having put away P1,500 every quarter ever since Rene was a year old to pay for an education "pre-need" plan, they were confident that they would not have to worry when it was time for Rene to enrol in college.

But last May, when Celia expected to draw on the policy to subsidise Rene's first year of college education, the pre-need firm told her that it had no funds to finance the boy's schooling.

"The reason why I took the policy in the first place was to make sure that my son could get a college education without worrying about where to get the money. Now they are telling me that they cannot give me back our money at a time when I need it," she said.

The pre-need firm told her that she can advance the payment for the child's first year of schooling for later reimbursement when funds from the company are available.

Celia, however, can be considered one of the more fortunate ones.

Other pre-need policy-holders ended up empty-handed when they found out that the firms in which they had invested their money had already closed down after going bankrupt.

According to the regulating body, the Securities and Exchange Commission (SEC), more than 92,000 policy-holders have been affected by the closure of 13 pre-need firms in recent years.

Out of the 100 companies engaged in the business in 1999, only 45 renewed their licences this year, the SEC added.

"Pre-need", a business term unknown in other countries, was a result of the ingenuity of Filipino businessmen.

During the mid-Sixties, local businessmen, mindful of the relative inability of the state to provide adequate social security safety nets such as college education, pension, medical and even burial plans for the deceased, rushed in to fill the gap.

In 1980, one of the country's biggest pre-need firms, the College Assurance Plan (CAP), was established. It was followed by 100 other firms, turning pre-need into a multi-billion peso industry.

Almost six million plans valued at P260 billion ($5.2 billion) have been sold in the past 16 years.

CAP was in the spotlight last month after a local newspaper reported that the company had incurred a P2.5 billion ($50 million) shortfall in its trust fund that the firm blamed on the country's "poor business climate".

CAP, which by now had branched out into other pre-need related businesses such as pension, financing, health maintenance, life insurance and general insurance, immediately reassured its policyholders that it could readily meet its maturing obligations by disposing some of its assets to cover the P2.5 billion shortfall.

Apart from CAP, eight other pre-need firms reported deficits last May in their trust funds, which are used to finance their obligations to policy-holders.

Besides CAP and another pre-need company, six of the companies who had earlier reported trust fund shortfall have already covered their deficits, according to the SEC.

Unlike the insurance industry, which is governed by rules specific to the business, the pre-need industry is guarded by the same laws that bind other business such as manufacturing, trading and marketing, House of Representatives member Jesli Lapus said.

"The pre-need industry clung to the norm of ad hoc regulations better suited for other types of businesses," he said.

Ideally, pre-need firms are allowed to invest only a portion of their finances in trust funds. This is to ensure that they will have funds to cover their obligations.

However, there are strong suspicions that the money is being invested in high-yielding yet high-risk investments.