funeral plan

Funeral plans: the state of affairs

Under regulations in effect from 29th July 2022, the Financial Conduct Authority (FCA) has authorised 26 pre-paid funeral plan providers – making up c. 87% of the market – to sell new plans to consumers.

As for unregulated firms that applied before 1st March 2022 but were not authorised, they have until 31st October 2022 to transfer their plans to authorised firms or refund their customers.

“There is more to the story”

For those firms that remain within the market, however, there is more to the story.

The pre-paid funeral plan market grew by 35% in 2021, and 22% of funerals are now pre-paid. It is unsurprising, therefore, that the FCA were so keen to stamp their authority on what was previously an unregulated sector.

While a handful of unregulated firms – dubbed by some as “troublemakers” – were doubtless left to operate for too long, it is fair to say that the regulator’s swiftness will have prevented some consumer detriment. On this, the FCA said:

“We have worked tirelessly to assess funeral plan providers, under our robust authorisation process. With our new rules in place, consumers will be better protected, when they need it the most. We are continuing to engage with the industry to secure appropriate outcomes for customers of firms that are leaving the market by 31st October.”

However, despite the FCA largely achieving their objective of rectifying the market, their urgency to right the wrongs within the sector has left some firms feeling battered and bruised, with one source telling Today’s Wills and Probate that the FCA “took a heavy hand in an area they knew little about”.

Plain sailing from here?

The reward of authorisation will not change the fact that it has been a tough period for those firms that obtained authorisation. Ominously, it also seems that the hardship is not yet over.

The FCA’s new Consumer Duty will set higher and clearer standards of consumer protection across financial services and require firms to put their customers’ needs first, leading to a “major shift” in financial services, though exactly how this will be squared with funeral plan regulation remains to be seen. The FCA commented:

“Our new consumer duty will also apply to funeral plan providers. This will mean their customers should receive communications they can understand, products and services that meet their needs and offer fair value, and they get the customer support they need, when they need it. We’ll continue to keep a close eye on this market. Funeral plan providers are already subject to fair value rules, which are aligned with the price and value outcome in the new Consumer Duty.”

On this, Paul Thilo, Managing Director, Pre-Need Services, Pure Cremation Funeral Planning Ltd – one of the firms regulated by the FCA – said that “all firms are obliged to have an implementation plan ready for this in October, and when this is completed it is likely there will be further developments in regulation”. He added:

“We were very pleased to be authorised by the FCA as a funeral plan provider, but we do not expect plain sailing from here. Becoming an authorised provider is the start of the journey not the end point.

Preparing for the new regulation involved a great deal of change which we are now reviewing and refining to ensure it works for customers and our people.”

Other challenges within the market include adherence to marketing compliance rules, keeping and maintaining appropriate evidence of customer outcomes, and proving customer need for new propositions.

Authorised firms are not, therefore, out of the woods – many of the same questions faced by firms pre-regulation remain. Simon Cox, Director of FuneralSolutionExpert.co.uk, said:

“I suspect some may still underestimate how tough the FCA will continue to be as a regulator – and I could still see a few of those who have been given regulatory approval falling foul because they think they’ve done the job by gaining approval!”

Mr Cox also warned of the bad practice from the pre-paid funeral plan sector appearing in the probate sector: “They have simply jumped over the regulatory border with the potential to create carnage in another sector.” Whether the funeral plan regulations are a warning of what’s to come for the pre-paid probate industry remains to be seen.

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