Distribution of Funeral Insurance Workshop puts a Spotlight on the Funeral Parlour Business

Between 27 June and 1 July 2025, the Prudential Authority (“PA”) and the Financial Sector Conduct Authority (“FSCA”) (collectively referred to as the “Regulator”) held consultation workshops with the industry in terms whereof the Regulator seeks to work with industry stakeholders to develop a comprehensive approach to reviewing the framework for funeral insurance. In this regard, the Regulator envisions a wholistic framework that encompasses regulatory review, compliance and capacity building, supervision and enforcement actions, and consumer empowerment.

The workshops were insightful and placed a spotlight on the funeral parlour business, which is a business that has its main focus on delivering funeral services beyond just a cash payout from a funeral policy.

From the statistics presented by the Regulator, the following were noteworthy:

• 72% of South African have funeral cover, with some of the higher numbers indicating that most customers hold funeral policies through funeral parlours / undertakers; and
• more than 4000 funeral parlours offer insurance related services. 

To most individuals in South Africa, a funeral policy taken through a funeral parlour is not only intended to provide the customer with a sum of money which they can use on their own to cover the cost of the funeral. But rather most individuals are interested in the service aspect provided by funeral parlours from the storage of the remains, funeral arrangements to conducting the burial.

The funeral service market is driven by a need for a dignified funeral and to satisfy certain traditional customs associated with a funeral, and all of this comes at a cost. Accordingly, costs associated with a funeral tend to be onerous on low-income families especially where a lump sum payment from a funeral policy does not stretch far enough to cover all the associated costs for a dignified burial. For this reason, individuals turn to funeral cover taken through funeral parlours.

To meet the need of a dignified funeral and the costs of the associated funeral service, funeral parlour come into play and bridge the gap between the cost of funeral and the burial service to fully satisfy the customer’s need. However, regulatory challenges arise where funeral parlours operate outside the current regulatory framework by offering insurance related services without the appropriate authorisations.

One instance where funeral parlours start to enter the insurance related service field is when they receive monthly premium from customers and make a promise that when a death event occurs, they promise to deliver a benefit, be it in the form of cash or a service rendered, and this starts to resemble ‘funeral insurance’. When Funeral Palours enter this field, the following regulations apply:

• The Policyholder Protection Rules promulgated under the Long-term Insurance Act, (“PPR”)
  • The PPR promote the fair treatment of customers and set out market conduct requirements ranging from product design, premium determination and reviews, disclosures and complaint management etc.
  • The PPR also set out the standards and disclosures to be complied with in respect of insurance policies in order to ensure that fair outcomes for customers are achieved. 

• The Financial Advisory and Intermediary Services Act, (“FAIS Act”)
  • The FAIS Act addresses the rendering of financial services and aims to protect customers by regulating the financial services industry, ensuring adequate information and competent advice are provided to customers. 

• The Insurance Act
  • The Insurance Act requires any person who conducts life insurance business, including providing funeral insurance policies (i.e., policies underwritten under the Funeral Class of life insurance business), to be licensed as an insurer. 

The failure to comply with legislation regulating funeral insurance creates market conduct concerns that eventually lead to the failure to achieve fair outcomes for customers. With this in mind and to maintain the integrity of the financial services space, we saw the FSCA issuing several enforceable undertakings through its Enforcement Division that was established to inter alia address the growing number of unregistered insurance and financial services providers operating within the funeral parlour industry.

In reviewing the number of enforceable undertakings issued by the FSCA, the following non-compliance issues were noted:

• Funeral parlours are not appropriately licensed e.g. self-underwriting or conducting insurance business without being licensed under the Insurance Act.
• Performing financial services as defined in the FAIS Act without a FAIS license.
• Not adhering to the PPR thereby compromising the fair interests of policyholders.
• Funeral Parlours conducting insurance business and rendering financial services without being appropriately licensed, compromises the Regulators’ ability to exercise adequate oversight in the market over regulated activities.

Other key challenges highlighted by the Regulator:

• Funeral parlours with a limited customer base offer unrealistic premiums to attract customers.
• Self-underwriting by funeral parlours exposes customers to risk, including uncertainty on the availability of funds and operational ability to have the full value of their claims settled in line with their expectations.
• Lack of access to adequate customer data by insurers which affects the insurers’ ability to properly underwrite policies and to fulfil other regulatory requirements.
• Lack of a relationship between clients and insurers / client not being aware of the insurer that underwrites their policies.
• “Books of business” are moved between insurers, without the knowledge and consent of policyholders and often contrary to the best interests of affected policyholders.
• Unfair customer outcomes where the relationship between an insurer and a funeral parlour breaks down.
• Restrictive or misguided interpretations of the regulatory framework by either the insurer or the funeral parlour’s compliance function used to hinder effective execution of obligations to policyholders

In addition, what was interesting during the workshops was hearing that despite the FAIS Act, PPR and Insurance Act being in place for many years now, there is still no aligned understanding in the industry on the difference between intermediary services and binder functions, and what the role of the insurer is /or should be verses the role of an intermediary / binder holders.

Seems the Regulator needs to reclarify these roles in order to promote an aligned understanding across the industry and to eliminate misinterpretation. 

To address the concerns identified in respect of funeral insurance distribution, the Regulator will set up an Inter-regulatory Funeral Insurance Project under four pillars, namely:

• Regulatory framework
• Compliance Awareness and Capability Support
• Supervision and enforcement
• Customer empowerment 

Whatever the outcome is, promoting fair outcomes for customers or policyholders must be at the four front. However, it is also important that the Regulator clearly addresses the relationship between insurers and funeral parlours and the appropriate manner for moving “books of business” especially where the relationship between an insurer and a funeral parlour breaks down.