Testimony to House Financial Institution on HB 3436 Stephanie Newberg Texas Department of Banking April 16, 2007

Texas Department of Banking2 Prepaid Funeral Contracts Purpose of Chapter 154 of the Texas Finance Code: Provide regulatory framework to allow a person to arrange and pay for a funeral in advance. Provide safeguards to protect prepaid funds and ensure funds are available to pay for prearranged funeral services. Two regulatory objectives to achieve purposes of Chapter 154: Make sure prepaid contract is performed in accordance with terms meaning the funeral goods and services selected by purchaser are provided as specified in the contract. Make sure funds are available to pay for contracted goods and services at the time of need.

3 Partial Listing of Funeral Goods and Services Selected on a Prepaid Contract BASIC SERVICES OF FUNERAL HOME STAFFAND OVERHEAD $___________ EMBALMING: (explanation below) Embalming services $___________ OTHER CARE OF BODY: Bathing body $___________ USE OF BUILDING AND STAFF: Viewing/Visitation (# days________)$___________ Funeral service at funeral home$___________ Funeral service at other facility$___________ Graveside service$___________ TRANSPORTATION SERVICES: Transfer of remains to funeral home (________ mile radius)$___________ Hearse (funeral coach)$___________ Flower car$___________ GOODS: Casket……………………………………….. $___________ Wood Type: ________________________ Steel: 16 ga 18 ga 20 ga ___ ga Stainless Seal Nonseal Protective Nonprotective N/A Interior Lining: Crepe Velvet Satin Other_______ Shell: Square Round Exterior color: (opt)_______ Outer burial container (explanation below)…….$_________ Liner Vault Box Other (describe): Seal Nonseal Protective Nonprotective N/A GOODS (cont): Alternative Container (describe)________$___________ Urn (Name and Primary Construction)$___________ Shipping Container (describe)$___________ Clothing (describe)$___________ Stationery/Cards (describe) _____________________ (#_________)$___________ Acknowledgement cards (describe) _____________________ (#_________)$___________ Other$___________ OTHER SERVICES: Forwarding remains to another funeral home (describe method)$___________ Immediate Burial, with: Purchaser-provided casket$___________ Alternative container$___________ Funeral Homes container (describe)$___________ Direct Cremation, with: Purchaser-provided container$___________ Alternative container$___________ CASH ADVANCE ITEMS: We charge You for our services in obtaining the items with the boxes marked: Example (Cemetery Opening/Closing Fee) $___________ Example (Flowers)___________________$___________ ______________________________$___________ Texas Department of Banking

4 Options to Fund Prepaid Contracts PrePaid Funeral Customer Wishes to prearrange and prepay for specific funeral goods and services Two options to fund the prepaid funeral contract: (1) trust-funded; or (2) Insurance funded Trust Contract Seller / Funeral Provider Insurance Seller Affiliate / Subsidiary of Insurance Company Financial Institution (funds deposited) Insurance Company (issues insurance policy) Funeral Provider Texas Department of Banking

5 Prepaid Contract Industry Statistics (As of 12/31/2005) Number of Permits Number of Contracts Dollars Insurance Funded 57461,786$1,939,899,062

Texas Department of Banking6 Problems with Insurance Funded Contracts Under Current Regulatory Scheme Insurance Funded Permit Holders (seller) claim no legal responsibility or ability to ensure the prepaid contract is honored at the time of death: Example: At the time of need, a funeral provider who sold the prepaid contract as Sellers agent, overcharges a family $500 for a casket specified and purchased on the prepaid contract. Seller states it only sells prepaid contracts and as such is not responsible for actions of funeral providers.

Texas Department of Banking7 Problems with Insurance Funded Contracts Under Current Regulatory Scheme Insurance Funded Permit Holder walks away from contracts and regulatory responsibility, once sales/profits diminish. Magna Financial Services, Inc., San Antonio Abandoned permit in 2001 with 1,169 contracts representing a total death benefit = $4,087,660. The IEIS Fidelity Plan, Inc., Austin Abandoned permit in 2004 with 1,957 contracts representing a total death benefit = $6,948,575. No one other than the Department is available to ensure that the contracts are honored at the time of need.

Texas Department of Banking8 Problems with Insurance Funded Contracts Under Current Regulatory Scheme Insurance Funded Permit Holders include a bump on prepaid contracts, without disclosure and harm to the purchaser, that allows the funeral provider to receive additional funds at the time of death. Example: Purchaser buys a $5,000 funeral funded with a single pay life insurance product. The cost of the single pay policy is $4,500, but $5,000 is collected from the purchaser which buys an insurance policy worth $5,600. The funeral provider has made $600 in earnings the moment the contract is signed and the insurance policy is paid.