A once flourishing and promising industry in the 80’s and the 90’s is now just a part of history filled with failed promises and the heartaches of many Filipinos.

The pre-need industry in the Philippines, which primarily involves selling pre-need plans for education, memorial, and pension purposes, has faced significant challenges over the years. While it initially held promise as a means of providing financial security and peace of mind to consumers, several inherent flaws and external factors have contributed to its ultimate downfall. This article aims to shed light on the reasons why the pre-need industry in the Philippines was doomed to fail from the start.

Lack of Regulation and Oversight

One of the fundamental issues that plagued the pre-need industry in the Philippines was the absence of adequate regulation and oversight. The industry was largely self-regulated, which allowed companies to operate without stringent standards or monitoring mechanisms. The lack of regulatory control paved the way for unethical practices, mismanagement of funds, and even fraud, compromising the interests and financial security of consumers. Pre-need was under the regulation of the Securities and Exchange Commission (SEC) up until the pre-need code was passed (R.A. 9829). Pre-need plans mimicked insurance products without the very strict safeguards placed by the Insurance Commission on the insurance industry. By the time the regulation of the pre-need industry was transferred to the Insurance Commission, it was too late.

Insufficient Risk Management

The pre-need industry relied heavily on long-term projections and investment returns to fulfill future obligations. However, many pre-need companies failed to implement proper risk management practices. They often made overly optimistic assumptions about investment performance, leading to a mismatch between the promised benefits and the actual returns. This lack of risk management left these companies vulnerable to financial instability and an inability to honor their contractual obligations. Many pre-need companies are also invested in illiquid assets like real estate which was not a prudent decision for the nature of the investment products they were selling.

Misaligned Business Model

The pre-need industry in the Philippines adopted a business model that was fundamentally flawed. Companies collected upfront payments and made promises to deliver specific benefits in the future. However, this model depended on the assumption that the investment returns would be sufficient to cover future costs. In reality, relying solely on investment returns to meet long-term obligations proved to be unreliable, especially in an unpredictable economic landscape.

Economic Volatility and Investment Risks

The pre-need industry in the Philippines was highly susceptible to economic volatility and investment risks. Fluctuations in the financial markets, coupled with poor investment decisions, often resulted in diminished returns and financial losses for pre-need companies. As a consequence, they struggled to fulfill their contractual obligations, causing distress and disappointment among planholders who had placed their trust in the industry.

Lack of Consumer Awareness and Education

Many Filipinos were unaware of the potential risks and pitfalls associated with pre-need plans. The industry failed to provide adequate education and transparency to consumers, leaving them ill-informed about the complexities and potential drawbacks of investing in pre-need products. This lack of awareness and understanding further exacerbated the problems faced by the industry.

The pre-need industry in the Philippines faced an uphill battle from its inception due to a combination of factors. The absence of robust regulation and oversight, inadequate risk management practices, an unsustainable business model, economic volatility, and a lack of consumer awareness all contributed to its inevitable failure. As the industry continues to grapple with the consequences of its shortcomings, it serves as a stark reminder of the importance of stringent regulation, prudent risk management, and consumer education in any financial sector.