Capital Assurance Plan

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College Assurance Plan (CAP)”

Nature & background of the case:

Educational plans are essentially savings/investment accounts where you put money in, the money is invested in financial and other securities within government guidelines, and your money is supposed to grow over the years and eventually gets paid out to cover a beneficiaries school tuition and expenses.

CAP paid out huge commissions to agents, so that in some cases out of PHP30,000 that a customer paid in, only PHP15,000-20,000 actually went into the “trust fund” that had to grow to pay off the future tuition fees. CAP sold open-ended educational plans, and that the rise in fees distorted the actuarial assumptions. Holders of this type of plan can go to the most expensive schools but they pay a higher premium. There are two kinds of CAP educational planholders: those who are already getting paid for tuition and those who are called “non-availing” mainly because it takes roughly 10 years for them to start getting their benefits from Day One of the plan. Obviously, the availing planholders have the edge. Not so obvious is the fact that every time they get paid, it is to the prejudice of the non-availing. The non-availing outnumber the availing planholders almost 9 to 1. Of the 780,000 planholders of CAP, only 90,000 are availing.

Problems of the organization:

At the onset, CAP sold open ended plans confidently believing that they could meet their future obligations, because for the most part, CAP relied on a law that limited tuition increases at schools to stay fixed. That law was eventually removed, and the educational system was deregulated, eventually tuition expenses at many schools started to skyrocket to cover increasing costs. So the whole “payout” side of the plan suddenly got a lot more expensive than CAP had planned when they sold them.

The company claimed that the money that was paid in by the plan holders were invested but yielded far lower...
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