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A client of mine passed away early this month. Just in her 40s, she was a branch manager at one of the biggest foreign banks here. She was enjoying an out-of-town trip when tragedy struck. Her sister called me the following day, informing me that she succumbed to stroke.
Her insurance policy was about to lapse last January. It went into grace, which was the first time it did, and I called her before the period expired. She said that in light of what was happening to the Legacy group--and what had happened to CAP and Pacific Plans--she was having second thoughts about her insurance policy. She was afraid she would end up paying for nothing.
I understood her apprehension. I informed her that the companies that are in trouble are preneed companies. Their base product is an educational, pension, or memorial (also called life) plan. Or any combination of the three. Our company is a life insurance company, and preneed companies are NOT insurance companies.
There are many differences between the two.
First is
Capitalization. While a preneed company’s paid-up capital can be as low as P50 Million, insurance companies are required a much higher amount. By 2010, life insurance companies must have a paid-up capital ranging from P175 Million to P500 Million, depending on the extent of foreign ownership. As early as 2003, Sony Life Philippines got an infusion of an additional P1 Billion, making it the second largest insurance company in the Philippines in terms of capitalization. Even in Japan, Sony Life had total common stock of 70 Billion yen as of July 2008, although the government only prescribes a minimum of 1 Billion yen.
Second is
Regulation. Preneed companies are supervised by the Securities and Exchange Commission (SEC), which supervises all private corporations in the country. Insurance companies are supervised not just by the SEC, but by the Insurance Commission as well.
This is the reason why you never hear of insurance policy owners who complain when an insurance company closes its operation. Before an insurance company is allowed to close, the Insurance Commission makes sure its responsibilities to the policy owners have been taken care of.
Before joining Sony Life, I bought a policy from Allstate Insurance, an American company. I did not know they later withdrew from the Philippines; I just knew when my next mail arrived, when I noted that the official receipt was issued by Pru Life UK.
Third is
Reinsurance. When an insurance company like Sony Life accepts an insurance application above its retention limit of, say, P2 Million, it turns to the reinsurer to undertake the excess amount. Recently, a colleague's uncle passed away and he was insured for P30 Million. If Sony Life were the insurance company, it would have paid P30 Million to the client's family and claimed the P28 Million from the reinsurer.
The most important difference, however, is that preneed companies are basically forced-savings companies. Insurance companies are insurance companies. Let me illustrate.
I joined Sony Life in August 2003. After a whole-month training (Monday to Friday, 8am to 7pm) at our office in Makati, I flew to Cebu for my dad's birthday celebration on September 2. While there, I shared the uniquely SONY concept that the company offers to my mom. My dad was already 79, but little did I realize that my mom was already 67. She really looked much younger, because she loved to walk. Unfortunately, Sony Life normally accepts insurance applications until age 65 only, like others in the industry.
Three months later, my mom suffered a stroke, her first. But she passed away after 10 days at the Intensive Care Unit of the Chong Hua Hospital--despite a brain surgery. She did not have life insurance, but she had a preneed plan. She already paid P30,000 for it, but we got nothing because it was not an insurance contract but a savings plan. It was to be paid in 5 years, and the company said we just needed to assign a subsequent owner who would continue to pay the premiums. If it were an insurance contract, her beneficiaries would have gotten the total amount insured--even if she had paid for just one modal premium yet.
Again to illustrate. At that time, I met someone and we did a needs-based analysis using Sony Life’s proprietary software. Since her children were all grownups and she had passive income, her unprotected need came out to be just P1.183 Million. Being in her mid 50s and hypertensive, she deposited P10,000 for a whole life policy at our second meeting. If something had happened to her after that policy was delivered, Sony Life would have released P1.183 Million to her beneficiaries--even if she had paid for just one premium yet. THAT is insurance.
Back to my client, the banker, who had become my friend. After seeing the difference, she decided to continue the coverage. She said she would deposit the premium, but she also said she had yet to discuss the matter with her husband. Her policy lapsed a few days later.
Last time I called her to ask was on her birthday a couple of months back. But she was not there.
