Alabama's Preneed Funeral & Cemetery Act

Contact: Mike Bownes, General Counsel
(334)241-4120

9/19/2002

The Alabama Department of Insurance has revised the form of the financial disclosures required from individuals or entities making initial application for preneed certificates of authority and from preneed sellers renewing certificates of authority previously issued by the Department.

Under Alabama's Preneed Funeral and Cemetery Act (ALA. CODE §27-17A-1 through 56), individuals and entities selling funeral or cemetery merchandise or services preneed must obtain a certificate of authority before engaging in such sales. The Act provides that, as part of an application for such a certificate, the preneed seller must provide certain information to the Commissioner of Insurance concerning its financial condition.

Prior to the adoption of the new requirement, through its website, the Department had provided a form financial statement applicants were to complete and return with their applications for certificates of authority. "Attaining compliance with the Preneed Funeral and Cemetery Act's financial disclosure requirements was difficult" said David Parsons, Commissioner of Insurance. "Some applicants completed the form established by the Department. Others ignored the Department's form and sent financial statements prepared by their accountants, regardless of whether or not those financial statements provided all the information the Department needed to properly evaluate the applicant's financial condition. Some applicants didn't send financial statements at all and, ignoring the instructions for a completed application in their entirety, mailed the Department documents such as tax returns in an 'effort' to provide the required financial data."

After consultation with accounting professionals and extensive discussions among the individuals working on preneed sales regulation, the Department adopted the description or standard set forth below. "The new financial disclosure requirement is stated in language common to all accounting and bookkeeping professionals", Parsons said. "It means the same thing to an accountant practicing in Muscle Shoals as it does to one practicing in Dothan. The new standard will ensure uniformity in the financial data provided to the Department. The financial data presented by a certificate holder in one area of the state will be the same as that presented by a certificate holder doing business in another. This will allow an 'apples to apples' comparison of the financial information that has been submitted."

As of September 4, 2002, the following financial information will be required from all persons submitting initial applications for certificates of authority to sell preneed funeral and cemetery merchandise and services and from all current certificate holders seeking to renew their certificates of authority.

Section 27-17A-11 of the Alabama Code requires both initial applicants for certificates of authority and persons applying for the renewal of their certificates of authority to provide the Commissioner of the Alabama Department of Insurance with a statement demonstrating, among other things, that the applicant "[h]as the ability to discharge his or her liabilities as they become due in the normal course of business". Beginning on September 4, 2002, persons seeking to comply with these requirements must, at a minimum, provide the Commissioner compiled financial statements with full disclosures, including a cash flow statement, prepared on GAAP basis. For purposes of determining that portion of preneed receivables and preneed liabilities to be allocated between current assets and liabilities and non-current assets and liabilities, one-seventh (1/7) of the total preneed receivables and liabilities shall be classified as current assets and liabilities, while the balance of preneed receivables and liabilities shall be classified as non-current assets and liabilities.

Questions about the new financial disclosure requirements should be directed to Vincent R. Ledlow, Esq., Deputy Attorney General, at (334) 240-4411 or VLedlow@insurance.state.al.us.