Bringing pre-paid funeral providers within the remit of the FCA
In March 2020 the government confirmed that it will bring all providers of pre-paid funerals within the remit of the FCA. This was in response to concerns that customers were reportedly not made aware of the limitations of some packages that multiple plans did not cover the full funeral cost and that commission-based sales were leading to high-pressure tactics. Funeral prices had spiralled far above inflation for many years, by 62% in the last decade, and the industry came under regulatory scrutiny. After an 18-month industry consultation process, the government called for regulation that is more robust.
Introducing a new regulatory framework to support providers and protect consumers
COVID-19 delayed the planned legislation, but further consultation will take place in spring 2021, with a new regulatory framework to be enforced from the summer of 2022. The FCA proposes that the new rules will ensure that consumers are properly protected and receive the product for which they’ve paid, and that customer funds are looked after and used responsibly.
The COVID-19 crisis has already impacted pre-paid funeral plan providers. Since many providers of these types of plans rely on face-to-face sales, there has been more difficulty in selling pre-paid funeral plans over periods of lockdown. In addition, economic uncertainty has led to fewer people buying funeral plans. Direct cremation (low-cost cremation without a service) has increased in popularity.
Additional pressures on the sector include the CMA’s proposals to introduce price caps (also delayed by COVID-19), as well as the challenges facing investment funds, with uncertain performance of assets held in trusts for the benefit of those who have purchased plans.
What could be the impact for providers and consumers?
There are parallels with other industries that have recently come under the FCA’s remit, such as the personal injury market, Individual Voluntary Arrangement debt management market, and Road Traffic Accident (‘no win no fee’) industry. The regulation of these industries has led to an increase in costs to providers, due to the need to familiarise themselves with new rules and ensure ongoing compliance. For example, the RTA sector, the government sought to reduce the cost of claims and ensure that promotions did not mislead potential customers. It remains to be seen whether the FCA will also implement an FSCS levy scheme. As we have seen in these previous cases, the increased burden of regulation led to exits from the sector and market consolidation.
Important actions for providers to consider:
- Assessing whether existing organisational structure meets future needs and taking future compliance costs into account
- Evaluating whether existing risk modelling includes likely fall in investment returns and reduced sales
- Preparing robust financial forecasts, identifying funding requirements and engaging in early discussions with stakeholders.
- Considering divestment of the funeral plan part of their business
- Looking for opportunities to increase market share via internal growth or through acquisition.
- Working to identify targets and to have resources in place to act quickly to pursue beneficial opportunities.
If you would like to discuss any aspect of the changes in more detail and how it will affect the service you provide please contact James Garside or Joe Wells. You may also be interested in referring to our interactive key event timeline to guide the decisions you take. By understanding how each of these key events may affect your business, appropriate strategies can be put in place to navigate through any challenges and opportunities that these will present. You may also find our recent article on the business interruption insurance verdict helpful.
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