PRE-NEED CODE OF THE PHILIPPINES

Case Overview and Summary

Title: Pre-need Code of the Philippines

Declaration of Policy (Section 2): The State shall regulate pre-need companies based on prudential principles to promote soundness, stability and sustainable growth of the pre-need industry, and to protect the rights and interests of planholders.

Definitions (Section 4):
• "Pre-need plans" are contracts providing for future services, payments or benefits in exchange for installments or lump sum.
• "Pre-need company" refers to corporations authorized to sell pre-need plans.
• "Planholder" refers to the person who purchases a pre-need plan.
• "Beneficiary" refers to the designated recipient of benefits under a pre-need plan.
• "Trust fund" refers to the fund set up from planholders' payments to pay for benefits and termination values.
• "Pre-need reserve liabilities" refers to the liabilities of the pre-need company for its in-force and lapsed plans.

Authority of the Insurance Commission (Sections 5-6):
• The Insurance Commission has primary and exclusive supervision over pre-need companies.
• The Commission has powers to approve licenses, fix fees, regulate operations, issue orders, impose sanctions, take over companies, and make rules and regulations.

Organization and Licensing of Pre-need Companies (Sections 7-13):
• Pre-need companies must be incorporated and have minimum paid-up capital ranging from ₱50 million to ₱100 million depending on the number of plan types offered. (Section 9)
• The Commission must approve the incorporation, amendments to articles and bylaws, and licensing of pre-need companies. (Sections 7-8, 10)
• The Commission shall prescribe qualifications and disqualifications of directors and officers, and at least 20% must be independent directors. (Sections 11-12)
• Directors and officers are subject to investment restrictions in entities where the trust fund has investments. (Section 13)

Registration of Pre-need Plans (Sections 14-19):
• Pre-need companies must register their pre-need plans with the Commission within 45 days of licensing, providing required documents like viability study, plan copy, and sales materials. (Sections 14-15)
• The Commission shall accredit actuaries responsible for certifying the viability study. (Section 16)
• The Commission must approve all pre-need contract forms and advertising materials. (Sections 17-18)
• Pre-need companies must provide an information brochure to prospective planholders explaining the plan features. (Section 19)

Licensing of Sales Counselors and General Agents (Sections 20-22):
• Sales counselors must be licensed by the Commission after meeting qualifications like training, examination, and good moral character. (Section 20)
• The Commission may deny, suspend or revoke a sales counselor's license for specified grounds. (Section 21)
• General agents contracted by pre-need companies must also be licensed. (Section 22)

Default and Termination by Planholders (Sections 23-24):
• Pre-need contracts must provide a grace period of at least 60 days for paying installments, after which the plan lapses but can be reinstated within 2 years. (Section 23)
• Planholders may terminate their pre-need plan at any time and are entitled to termination values predetermined in the contract. (Section 24)

Claims Settlement (Sections 25-29):
• The Commission may penalize pre-need companies for unfair claims settlement practices like misrepresenting facts, failing to investigate claims promptly, or compelling planholders to sue. (Section 25)
• For scheduled benefit plans, proceeds must be paid immediately upon maturity, else interest is due. For contingent plans, benefits must be paid within 30 days of document submission. (Sections 26-27)
• If a pre-need company unreasonably delays or denies a claim, it is liable for damages, attorney's fees and interest. (Section 28)
• Pre-need companies may declare dividends only if capital, liabilities and trust fund remain unimpaired. (Section 29)

Trust Fund (Sections 30-38):
• A trust fund per plan category must be established to ensure delivery of guaranteed benefits, using planholders' installments as determined by an actuary. (Section 30)
• The pre-need company must make monthly deposits to the trust fund based on specified minimum limits. (Section 31)
• The trust agreement must be approved by the Commission and contain provisions on operation, investments, auditing, and withdrawals. (Sections 32-33)
• Trust fund investments are limited to specified instruments like government securities, deposits, commercial papers, loans, equities and real estate, subject to prescribed limits. (Section 34)
• The pre-need company must annually determine its reserve liabilities through a valuation report certified by an actuary or auditor. (Sections 35-36)
• The trustee must maintain a liquidity reserve of at least 15% of the trust fund to cover benefits payable for the next year. (Section 37)
• Upon Commission approval, the pre-need company shall entrust the trust fund to a qualified trustee which cannot be an affiliate. (Section 38)

Actuaries for Pre-need Companies (Sections 39-40):
• Specified actuarial reports like valuation of liabilities, asset share studies and financial projections must be certified by an accredited actuary. (Section 39)
• The Commission may disaccredit an actuary for failure to perform duties, conflict of interest or violation of conduct code. (Section 40)

Reports and Examination (Sections 41-46):
• Pre-need companies must annually submit a pre-need reserve valuation report and audited financial statements to the Commission. (Sections 41-42)
• Pre-need companies must file an annual statement of the trust fund, certified by the trustee if managed by one. (Section 43)
• Pre-need companies must publish a synopsis of their annual statements in newspapers. (Section 44)
• The Commission shall examine the affairs and operations of pre-need companies at least annually. (Sections 45-46)

Financial Accounting Standards (Section 47):
• The Commission shall prescribe accounting rules and regulations for pre-need companies.

Suspension or Revocation of Authority (Section 48):
• The Commission may suspend or revoke the authority of a pre-need company if it is in an unsound condition, failed to comply with laws or regulations, or its operations are hazardous to the public or planholders.

Conservatorship and Insolvency Proceedings (Sections 49-52):
• The Commission may appoint a conservator to take charge of a pre-need company's assets and management if it is unable or unwilling to comply with requirements. (Section 49)
• If a pre-need company is insolvent or its continuance is hazardous, the Commission shall designate a receiver to take over the trust fund and assets for the benefit of planholders and creditors. (Section 50)
• The Commission may take custody of the trust fund upon liquidation of the pre-need company. (Section 51)
• The Commission shall liquidate insolvent pre-need companies, distribute the trust fund to planholders, and convert assets to settle liabilities. (Section 52)

Administrative Sanctions and Criminal Penalties (Sections 53-54):
• The Commission may impose administrative sanctions like cease and desist orders, license suspension or revocation, and fines of ₱10,000 to ₱1 million plus ₱2,000 per day for violations. (Section 53)
• Criminal penalties include imprisonment of 1 to 12 years and fines of ₱50,000 to ₱5 million for offenses like selling unregistered plans, fraudulent acts, negligent acts prejudicial to planholders, and willful violations. (Section 54)

Miscellaneous Provisions (Sections 55-62):
• The Commission has primary and exclusive power to adjudicate claims involving pre-need plans up to ₱100,000, with appeals going to the Court of Appeals. (Sections 55-56)
• Existing pre-need companies have 1 year to comply with the Code, except for new plan registration which is 120 days. Pending cases will continue with the SEC. (Section 57)
• The Commission shall adopt implementing rules and regulations within 60 days. (Section 58)
• The Code shall take effect upon approval and repeals inconsistent laws. (Sections 61-62)