Posted 10/22/2012 12:00 am
The Arkansas Insurance Department scheduled a public hearing at 9 a.m. on Oct. 30 on a proposed increase in the fee charged on new prepared funeral benefits contracts.
The fee is currently $5; the department has proposed doubling that to $10, a level that has been charged previously, according to Booth Rand, managing attorney of the AID’s legal division.
The fees are placed in the state’s Prepaid Funeral Benefits Contracts Recovery Fund, which is tapped whenever funeral homes are unable to honor prepaid contracts.
The contracts are not burial insurance policies and are not underwritten by burial insurance companies.
Instead, they are contracts under which an individual can pay future funeral expenses at current prices, and the contracts are generally sold by funeral homes.
In the notice of public hearing, Booth said that AID was “concerned that the current recovery fund reserves are inadequate protection to contract holders should there occur multiple insolvencies in larger organizations.”
He told Arkansas Business that state regulators were not concerned about any specific issuer of pre-paid funeral contracts nor of any trend in the industry that would make insolvencies more likely.
Instead, the concern is one of simple mathematics: The Prepaid Funeral Benefits Contracts Recovery Fund currently contains only about $1 million while the value of outstanding funder benefits contracts in the state was $489.4 million as of Dec. 31, of which $128.7 million was paid in cash.
(Other funding methods include insurance, which represented $190.5 million at the end of 2011, and annuities, $174.1 million.) If several insolvencies happened in short order, Booth said, there might not be enough in the fund to make everyone whole.
The heavyweight in Arkansas’ prepaid funeral contract industry is Assured Peace Funeral Plan, the program offered by the Roller Funeral Homes.
It had $90.6 million worth of contracts in force as of Dec. 31, some $64.5 million of it collected in cash.
A distant second is the Stewart Enterprises Inc. family of funeral homes, which include Griffin Leggett in central Arkansas. Its operations combined for $35.4 million, most of it funded with annuities and insurance.
North Little Rock Funeral Home and the Westbrook Funeral Home it purchased in Beebe in 2008 combined for $22.4 million in prepaid funeral contracts as of Dec. 31, mostly funded through insurance.