The FSCA and the Prudential Authority (PA) have invited stakeholders to participate in a project that will review the regulations governing the distribution of funeral insurance.
In a Joint Communication released yesterday, the Authorities said they have initiated a collaborative project that seeks to address the concerns relating to the distribution of funeral insurance.
The project includes a review of the existing regulatory framework to evaluate any potential issues, including the potential unintended consequences arising from, among other things, the change in the definition of “group” in the Insurance Act.
The Authorities said they are “committed to ensuring that the project is undertaken in a consultative and inclusive manner by considering inputs that meaningfully reflect the interests of key market participants and impacted consumers”.
To this end, they intend to hold stakeholder workshops during the first half of 2025. The “inputs provided during these workshops will be critical to ensure the formulation of a pragmatic and balanced approach for the future regulation and supervision of funeral insurance in South Africa”, says Joint Communication 7 of 2024.
The Joint Communication notes that the funeral insurance sector plays a pivotal role in South African society, particularly among underserved communities for whom burial costs can be prohibitive. Funeral insurance often provides a lifeline, ensuring that families can manage these expenses with dignity and within culturally significant timelines.
In 2011, National Treasury published the South African Microinsurance Regulatory Framework, setting out its policy position aimed at promoting better access for South Africans to affordable insurance products through the introduction of a Microinsurance (MI) Policy Framework. The framework aimed to formalise informal providers (for example, funeral parlours), reduce market entry barriers, and enhance consumer protection.
Following the publication of the document, National Treasury worked with the Authorities to reform the regulatory framework for funeral insurance, the Joint Communication says.
It says the regulation and supervision of funeral insurance distribution, including through funeral parlours, been the subject of “extensive consideration” by the Authorities over a number of years. Despite this, the funeral parlour market and the Authorities have significant concerns about the appropriateness and effectiveness of the current regulatory framework.
The Joint Communication outlines these concerns.
Concerns raised by the funeral parlour market
The funeral parlour market believes the current regulatory framework hampers their ability to achieve meaningful growth and effectively serve their underserved customer base. The three specific areas of concern are:
Challenges with the MI licensing framework
Introduced under the Insurance Act, the MI licensing framework was intended to help small and emerging funeral service providers transition smoothly into fully licensed insurers. However, funeral parlours report that this goal has not been fully realised. They feel that the licensing application process and capital requirements for market entry remain disproportionately high, particularly given the smaller scale and less complex nature of their operations. This makes it difficult for these smaller businesses to transition into licensed entities or expand their services.
Barriers to joint ventures and cell captive arrangements
Funeral parlours and small intermediaries face significant obstacles in forming partnerships with larger insurers or in establishing joint ventures and cell captive arrangements. These partnerships are reportedly hindered by stringent underwriting criteria, high pricing models, and restrictive sales thresholds imposed by larger insurers. These demands are often out of reach for smaller providers.
Ownership and control of client assets
Another key concern arises from recent amendments to the definition of “group” in the Insurance Act, along with changes to the Policyholder Protection Rules under the Long-term Insurance Act. These changes are perceived to shift ownership and control of client assets from funeral parlours to insurers. The new rules designate insurers as the entities ultimately responsible for underwriting policies, which has effectively stripped funeral parlours of control over their client relationships and policyholder assets.
Concerns raised by the Authorities
The Authorities have raised several significant concerns regarding the funeral insurance market, primarily surrounding the structure, compliance, and operational practices within the industry. The Authorities’ specific areas of concern include:
Redefinition of ‘group’ and its consequences
Prior to the regulatory amendments relating to “group” structures, funeral parlours acted as the primary policyholders of group funeral policies. Although their clients were members of these policies, they did not have direct access to, or a relationship with, the insurers themselves. This structure limited insurers’ access to critical underwriting and client data, which hampered insurers’ ability to effectively underwrite policies and manage risks. The lack of transparency and direct interaction between insurers and clients made it challenging for insurers to fulfil their obligations, particularly in ensuring fair customer outcomes.
Under the old group funeral policy structure, funeral parlours could transfer client “books of business” between insurers without the knowledge or consent of their clients. Such transfers were often against the best interests of the clients, because they were unaware of any change in their insurance coverage or the terms of their policy, which could lead to unfavourable outcomes.
To address these structural issues, the Authorities amended the definition of “group”. This change was intended to give insurers greater access to underwriting information and reduce the risks posed by inadequate transparency. However, the Authorities acknowledge that this redefinition may have unintended adverse consequences for funeral parlours, limiting their autonomy and ability to manage their client relationships directly. They remain open to discussions with industry stakeholders to identify alternative regulatory mechanisms that balance transparency with the operational needs of funeral parlours.
Prevalence of unlicensed and non-compliant entities
The Authorities are particularly concerned about the number of unlicensed entities, including funeral parlours, that engage in self-underwriting of insurance policies. These unlicensed businesses often collect “premiums” from clients without legal authorisation. Such practices put clients at financial risk, because these entities may lack the funds or operational capacity to settle claims in full, leading to potential financial and emotional distress for bereaved families unable to cover funeral expenses.
Misinterpretation of regulatory requirements in distribution arrangements
Even when funeral parlours work with licensed insurers in legitimate distribution arrangements, the Authorities have observed issues arising from overly rigid or incorrect interpretations of regulatory requirements. Either the insurer’s or the funeral parlour’s compliance team may enforce rules in ways that hinder the other’s ability to meet policyholder needs effectively. This misalignment can damage insurer-parlour relationships, ultimately impacting the policyholders and potentially resulting in reduced service quality.
Project’s envisaged focus areas
The FSCA and the PA’s collaborative project aims to address the abovementioned concerns raised by funeral parlours and the Authorities.
“The project also aims to promote compliance by identifying opportunities to provide increased regulatory support to small and emerging businesses that have limited compliance capability and strengthening the Authorities’ supervisory and enforcement frameworks to deal with instances of non-compliance more effectively,” the Joint Communication says.
Based on the concerns raised to date, the Authorities envisage the project will focus on four areas, which will be unpacked during the workshops next year.
The four areas are:
1. Regulatory framework review. A comprehensive review of the insurance regulatory framework will be conducted to identify improvements that can help increase formalisation, accelerate market growth, and enhance enforcement within the funeral parlour sector.
2. Compliance awareness and capability support. This will focus on training and awareness initiatives to enhance the understanding of regulatory expectations within the funeral parlour market. This includes providing guidance to unlicensed funeral parlours seeking authorisation under the FAIS Act.
3. Supervision and enforcement. This will aim to strengthen supervision and enforcement strategies to ensure high compliance levels while keeping costs manageable. This may involve co-ordinating efforts between relevant agencies to create a more effective and holistic approach to overseeing the funeral parlour market.
4. Consumer empowerment. Strategies will be developed to improve consumer financial literacy and awareness regarding funeral insurance. This will empower consumers to engage with legitimate providers, better understand their rights and obligations, and know how to seek recourse if issues arise, such as unfulfilled claims or complaints.
Invitation to participate in the workshops
The Authorities said anyone with a material interest in the outcomes of the inter-regulatory project and who wants to participate in the workshops should confirm their interest by sending an email to FSCA.funeralins@fsca.co.za. The email should provide details of specific individuals to be included in the workshops, including names, email addresses, geographical locations, designations, and organisations being represented.
Further details about the dates and times of the workshops and the agenda will be provided closer to the time.
The FSCA and the PA said they remain committed to promoting the growth and development of a formal funeral insurance market that recognises funeral parlours as key role-players.
“The development of this market must be done in a responsible and fair manner that does not compromise the integrity of the financial sector and the paramount interests of vulnerable and underserved consumers. The Authorities look forward to constructive engagements with insurers, the funeral parlour industry, and other impacted persons to achieve these outcomes.”
ONE Funeral Directors Association needs to be registered.
You don’t know which association the undertaker is registered with unless you ask, and they don’t tell you either.
Like all financial service providers / brokers / brokerages and insurance and investment houses, that is registered on the FSCA page, the undertakers need to be registered on once place.
In our case my mom passed on 29/08/2024. Her memorial was on 14/09/2024 as an autopsy had to be completed. The cremation was delayed as the undertaker kept on saying the crematorium have not fetched her body yet. After enquiries, he had never booked the cremation. Finally, after I spoke to a crematorium, my mom was cremated on 04/10/2024.
Metropolitan paid 2 policies to him. We made a payment. He was therefor paid 3x for the memorial. He refunded one policy and refunded the second payment in 4 parts. He had long stories, where finally he advised he had to pay an overdue credit card with his bank.
This undertaker seems to operate in a very unethical and unprofessional manner. It became apparent when he started with, he did not get both payments, when in fact I sent him the proof from Metropolitan. He blamed the Metropolitan payment system, then the bank, then his private banker. Making a payment to an undertaker is essentially a 3rd party payment. Why is the family not paid, and the family pays the undertaker. The undertakers must then have clear communication to clients that no service will be arranged until the full payment is received. Prior to knowing about how unreliable and untruthful, we recommended his services to various families.
Deepest sympathy on the passing of your Mom. Your experience highlights many issues needing to be addressed, mainly the nature of the relationship and obligations by the insurer parties.
Get input from the Micro Insurance Association of South Africa. They represent microinsurers.
The importance of funeral parlours registering with an independent funeral association is a critical shortfall to protect consumers and holding membership accountable which doesn’t necessarily happen because funeral associations is voluntary and has no jurisdiction in terms of the law to enforce membership.
The need for a dedicated ombudsman and funeral industry regulatory authority is an essential need to work in conjuction with other existing participants within funeral industry value chain and the FSCA. The proposed establishment of a regulator ( licensing body ) and ombudsman linked to operational requirements ( service sector ) would assist with implementing current shortfalls affecting consumers and licenced funeral parlours.
Kudos to the how the FSCA and PA attends to role players concerns, the sector is being rightfully professionalised.
We need to find ways to reduce the cost of compliance, not increase it. A good start would be to make individual funeral policies exempt from FICA. Funeral policies are low sum insured, pure risk policies with no investment component. They have no value as money laundering vehicles. They are not assets that can be used to finance terrorists or the manufacture of nuclear weapons. Funeral policies are highly sensitive to cost inputs. Every FICA acronym costs money to implement. Funeral FSPs should be focussed on servicing their clients and growing their business, not trying to figure the meaning of AI, RMCP, ML/TF/PF, MLRO, CDD, DPI, RBA, UBO, and every other FICA acronym under the sun.
The importance of consumer education is a critical shortfall and FIRA ( Funeral Industry Reformed Association ) calls on insurance industry associations to support FIRA and its call for for the establishment of a funeral ombudsman and a licensing body. It would also be recommended that the FIAS act is included into municipal by laws and for inspectors to be trained to ensure parlours are fully compliant of 36 laws overseeing the funeral industries value chain and to create effective collaboration between the private and public sector, especially within Government.
Nico du Plessis
I have a big problem with fly by nights selling funeral policies with out having an insurer, pokketing all the money fhey collect, Their is no will by the FSCA to stop them. The public is blinded by either their public position, religious position or political positions, they refuse to tell their clients with wich insurance company they are assosiated with.
This condition is unacceptable.
Futher more the MI regulation as it is, strip me from my business, I am in no position to negotiate with the insurer any advantages for my group