Are pre need plan companies predestined to fail due to wrong computation?

Rizal  Philippines   |  October 28, 2014



From Manila Times - pre need companies diasappearing?

We are currently studying the addition of memorial plans to our memorialization business.  We noted though, while enshrined in the law, the reason why pre need plans company fail.  Chapter 3 of the said pre need code, prescribes 5% contribution to the trust fund on the first year, 15% on the second year, and 70% thereafter.  While they look big on the 3rd to fifth year, the total trust fund contribution is only 46% of the total obligation.  Considering that yields on debt instruments range only from 0.5% to max of 3%, completing the 54% deficiency would be a tall order



Unless the following are done:

1.  Low cgs;

2.  Low overhead;

3.  Increase the trust fund contribution

4.  Have high grade investment, pre need plan companies are bound to collapse and fail.

Our observation is that memorial plan companies are most likely to succeed because of high gp/ sales to cost ratio.  Health plans have very high 70 to 80% claim a year.  Memorial plans have only 5 to 10% claim a year.

So actuaries, OIC try to recompute please.   Otherwise no more pre need companies will be left....