Missouri law failed prepaid funeral industry consumers in a scandal this year and must be reformed, state lawmakers were told at a public hearing in Kansas City. Sen. Delbert Scott, a Lowry City Republican and chairman of the General Assembly’s Joint Committee on Preneed Funeral Contracts, thinks reform will come in the 2009 session and has introduced Senate Bill 1 as a starting point for that debate.

“We nearly got something passed this year,” said Scott. “I think there’s a resolve to clean up the legislation.”

The issue boiled over last spring following the collapse of St. Louis-based National Prearranged Services Inc. and two of its Texas-based insurance company affiliates. The FBI is now investigating the companies, while state insurance guaranty associations in as many as 19 states have stepped in to cover millions of dollars in consumer losses.

Most observers expect the sticking point in Missouri to come in setting a minimum level for consumer payments that must be set aside to cover the costs of their future funerals.

Currently funeral homes and other pre-need sellers are allowed to keep 20 percent as an administrative fee and advance profit on each deal.

That lucrative revenue stream “is the crack cocaine of the funeral industry,” Marty Meyers, owner of Meyers Funeral Chapels in Blue Springs and Parkville, told panel members at last week’s hearing.

Besides keeping the 20 percent fee, executives at National Prearranged allegedly also drained cash from customers’ interest-bearing, insurance-funded accounts and converted them to term life policies that could not cover inflationary increases in the cost of funeral goods and services.

That has left both consumers and funeral homes shortchanged when the time comes to provide a National Prearranged funeral.

To partially resolve that crisis, state insurance guaranty associations, which act as consumer safety nets for failed insurance companies, agreed to cover the face value of funeral contracts, but not inflationary cost increases. Some contracts date back to the early 1980s.

Funeral homes, which still must honor those contracts, now must eat the difference, said Meyers. “There are a lot of funeral homes that can’t take these hits,” he told the committee. “Please do something.”

Industry giants such as Service Corp. International, with several Missouri funeral homes in the Kansas City and Columbia areas, testified in favor of maintaining the 80 percent investment status quo.

The Kansas City chapter of the Funeral Consumers Alliance won’t stand for that. “Missouri is at the bottom” of the list of states’ minimum trusting requirements, said local and national alliance board member Nancy Patterson. Many states require 100 percent, she said.

Scott’s proposed legislation, based in part on a study panel that met this summer, would require 100 percent trusting, but would also allow unspecified fees to be taken from the balance.

“That’s one of our biggest challenges,” said Scott, “setting administrative fee caps and percentages. Even the funeral home operators have different ideas.”

The measure also would: bar the use of term life insurance to fund pre-need accounts; bar common ownership or corporate control of pre-need sellers and trust managers; tighten state audit and oversight authority; and grant consumers “portability” to move their pre-need contract to another funeral home without penalty.

http://www.kansascity.com/business/story/928305.html