The Pre-Need Industry
The Pre-Need Industry
The Pre-Need Industry, like the Banking, Mutual Fund or Insurance industries, is an integral sub-sector of the Financial Services Industry. Pioneered as a uniquely Filipino creation in the ‘60s, pre-need plans accomplish the critical function of financial intermediation by building-up the Filipinos propensity to save and delivering essential products and services that cover the Filipinos basic needs in Education, Retirement and Death. Since its inception in 1966, the Industry has grown to benefit millions of Filipinos, providing not only the aforementioned academic, pension and memorial products and services but also jobs and income-earning opportunities to thousands of agents and employees. The Industry has also been a driver and key link to the nations progress through capital formation, moving moneys and investments, currently in the range of over P60Billion, and managing these through trust funds of universal banks and investment houses.
Through over two decades, the Industry registered double-digit growth in the late ‘80s and early ‘90s when annual growth averaged over 20% and total assets were in the hundred billions of pesos. At its height, there were over 100 registered companies in the Pre-Need Industry. The success of this Filipino Industry and the validity, in fact, of its original business model, has been bolstered through the years with the entry of multinational giants such as the AIG group through Philam Plans, Berkeley International Group and Sunlife Financial Group.
Basis for Industry Failure
Principally, there are four major, external factors that have caused the Industrys temporary illiquidity and brought on impending inability to service debts : (1) the reality of Uncontrolled Tuition Increases (“UTI”) – where tuition fees have increased 15 times to 30 times the original assumptions; (2) Restrictive trust fund rules – which have constrained pre-need companies to receive trust fund yields well below the returns needed to allow pre-need companies to sufficiently meet obligations under all the plans; (3) the untenable Actuarial Reserve Liability (“ARL”) scheme – which has negatively impacted the financial position of pre-need companies, and; (4) the Asian financial crisis of 1997 – whose protracted effects has prevented the economy from fully recovering – and the Industry Meltdown (Domino Effect) that has sent industry sales and collections on a downward freefall and plan terminations rise to an unprecedented scale and seen the collapse of a number of companies.
Uncontrolled Tuition Increases (“UTI”)
The problems experienced by the Industry are peculiar to it. In fact, it is an industry-wide contagion afflicting pre-need companies offering traditional open-ended education plans. This contagion