Pre-Need Bankruptcy Investigation
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Pre-Need Bankruptcy Investigation

Date: September 9, 2008
By: Juana Summers
State Capitol Bureau

JEFFERSON CITY - The threat that thousands of Missourians will have to foot the bill for funeral costs of relatives they thought had been covered came before a Missouri legislative committee Tuesday.

The Joint Committee on Preneed Funeral Contracts held its initial hearings into the financial failure of a St. Louis area based company that provides pre-financed funeral coverage.

National Prearranged Services' failure is expected to affect consumers in more than half the country affect as many as 200,000 consumers.  Missouri stands to take the largest hit.

A representative for the state's Insurance Department said she could not provide the committee with a precise figure as to how many Missourians would be affected.  The Missouri Insurance Guaranty Association's director, Charles Renn, said about 55,000 Missourians have some sort of pre-need funeral contract. 

A pre-need contract is like a savings account.  The consumer pays a set amount with the guarantee that whenever in the future the person dies, the full costs of the funeral and burial or cremation will be covered.  The pre-need company then invests at some of that money to assure there will be funds to cover the rising costs.

However, various investigations in Texas and other states found that investment practices by National Prearranged Services, Inc., left the without sufficient funds to cover obligations.

In May, Texas authorities placed the company and two other cross-owned companies under a type of government financial oversight.

The Missouri committee was urged Tuesday to enact laws providing stronger consumer protection provisions governing pre-need funeral contracts.

The recommendations were prepared by a working group of representatives government, the funeral industry and others.  The working group also recommended formal government licensing of pre-need funeral vendors.

Legislators Tuesday were still trying to come to grips with the cause and extent of the problem.

"I'm trying to figure out where the money went," said Sen. Bill Stouffer, R-Napton. The comment elicited laughs, before the room went back to silence.

"I don't think anyone quite has that figured out yet," answered the Missouri Insurance Department acting director, Linda Borher, who also testified at the hearing.

While there isn't an answer to where the money went, the Missouri Insurance Guaranty Association is offering one way to help Missourians affected by the company's collapse and liquidation.

The association is a government-created body designed protect customers from insurance company failures.  It is funded by contributions from the insurance industry.

The association plans to pick up some of the cost, helping to restore the policies to "face value" -- the initial amount paid by a policy holder. But this doesn't take interest or inflation into account, so additional funeral costs would have to be absorbed by individual funeral homes or paid by families of the deceased.

Renn, the association's director, said this plan is the only option for consumers right now. "If this plan didn't go forward, there would be no benefit to consumers at all," he said.

Without assistance from the Missouri Insurance Guaranty Association, funeral homes could have been responsible for shouldering the entire gap amount.  "The impact on funeral homes would have been so severe, that funeral homes would have had to close their doors," Renn said.

He said he is surprised, given current state law, that something like this has not happened before.

Missouri Insurance Guaranty would not start sending money toward these plans until late October, at the earliest.  Renn said they are awaiting the results of a Texas hearing of National Prearranged Services that is scheduled Sept. 15.

Even with Missouri Insurance Guaranty picking up some of the deficit, some Missouri funeral home directors expressed concern they could  lose business without consumer confidence in prepaid funeral plans, which local funeral home directors work with each day.

"To some people it's going to be devastating," said Brian Gardner, funeral director and embalmer at Parker Funeral Service in Columbia. "There are some funeral homes in Missouri where all of their prearranged contracts were with that company.  This will put them in a real financial pinch."

Gardner said at Parker Funeral Home, there are more than 100 funerals each year.  At least one in every three of those funerals involves a pre-arranged contract of some sort.

Columbia's funeral home industry has already been in the news, after the sudden state-ordered closure of Warren Funeral Home, after inspectors found unsanitary conditions and improperly stored bodies at the Columbia funeral home.

A representative from Warren Funeral Home declined to comment on the funeral home's former dealings with prepaid funeral contracts, or on the current investigation.

Meanwhile, the Missouri legislative committee's chair said he planned another session next month.