THE UNTIMELY COLLAPSE
A Reaction on the Bailing-out of Pre-need Industry
The concept of pre-need plans is a savings mechanism in order to secure future needs. Pre-need companies offer plans that provide for future educational costs, pensions upon retirement, and memorial services upon the demise of its plan holders.
Just lately, the pre-need companies experienced controversies for the senate found out that’s some of these companies can no longer accommodate the needs of the plan holders due to their financial struggles.
Among the causes of the collapse of the pre-need industry are the following: (1) deregulation of the tuition fees in 1992 that led to the skyrocketing tuition fees, (2) lower interest yields on trust fund investments due to the 1997 Asian financial crisis, (3) weak regulation, (4) inappropriate accounting practice, (5) collusion among pre-need companies and their affiliates, and (6) corporate indiscretion.
The deregulation of the tuition fees exacted heavy toll on the finances of pre-need companies enjoyed significant gaps between tuition fees and ROI. The gap stared to narrow after the deregulation in 1992. Tuition fee and ROI began to equalize by 1997. By 2004, the gap had widened causing the variance of almost 20%. The adverse impact of the deregulation of tuition fees took 10 years to fully materialize as trust funds and sales could no longer cover the mounting obligations. On the other hand, the Asian financial crisis broke out in 1997 causing a slowdown in the economy of countries in the Asian region including the
Philippines. The stock market crushed and wrecked the trust fund investments of the pre-need industry. The SEC is partly to blame for the co ...