The Prudential Authority and Financial Sector Conduct Authority (PA and FSCA) published Joint Communication 7 of 2024 (Joint Communication) on 6 November 2024. It addresses concerns raised by representatives of the funeral parlour industry regarding the appropriateness and effectiveness of the current regulatory framework for the distribution of funeral insurance in South Africa.
The Joint Communication sets out the current regulatory framework and how funeral policies are currently being distributed. It highlights the concerns of the PA and FSCA regarding the distribution of these types of policies and provides details on the inter-regulatory project initiated by the PA and FSCA to review the framework. It also invites stakeholders to participate in the project.
Some of the concerns raised by the funeral parlour industry include:
- The slow implementation of the microinsurance licensing framework under the Insurance Act, 2017 (Insurance Act). The framework is intended to accelerate the transition of small and emerging entities into fully-fledged insurers. In particular, concerns were raised regarding the licensing application process and market entry capital requirements, which are perceived to still be too high considering the nature, size and complexity of relevant business activities.
- The perception that the ability of funeral parlours and other small intermediaries to enter into joint ventures or cell captive arrangements with larger entities or traditional insurers may have been impeded by overly onerous underwriting criteria, unaffordable pricing models and excessive sales thresholds set by insurers.
- The perception that the amendments to the definition of ‘group’ in the Insurance Act, read with several amendments to the Policyholder Protection Rules under the Long-term Insurance Act, 1998, have resulted in unfairly divesting funeral parlours of the ownership and control of their client assets by transferring such ownership and control to insurers who are ultimately responsible for underwriting the policies of these clients.
Some of the concerns raised by the PA and FSCA include:
- The amendments to the definition of ‘group’ in the Insurance Act were made because, among other things, funeral parlours were the primary contracting parties of group funeral policies which meant that the clients (the underlying insured members of the group policy) did not have a direct relationship with insurers. The PA and FSCA acknowledge that the amended definition of ‘group’ has created potential unintended consequences for the funeral parlour market and they are open to engaging further on this.
- A high number of unlicensed entities, including funeral parlours, that are engaged in the self-underwriting of insurance policies and unauthorised collection of ‘premiums’ from their clients in contravention of prevailing insurance legislation, which exposes policyholders to various risks.
- Overly restrictive or misguided interpretations of the regulatory framework by either an insurer or a funeral parlour’s compliance function being used to hinder the other party’s ability to effectively execute its obligations to policyholders. This can result in prejudice to policyholders.
To address the concerns, the PA and FSCA have embarked on an inter-regulatory funeral insurance project aimed at reviewing and identifying potential issues in the current regulatory framework.
The project is also aimed at promoting compliance by identifying opportunities to provide increased regulatory support to small businesses that have limited compliance capability and strengthening the PA and FSCA’s supervisory and enforcement frameworks to deal with instances of non-compliance more effectively. The project will therefore cover a review of:
- the current regulatory framework affecting the funeral parlour market;
- compliance awareness and capability support for funeral parlours;
- the improvement of supervision and enforcement strategies; and
- consumer empowerment strategies to improve the financial literacy and awareness of consumers of funeral insurance.
The PA and FSCA intend to hold stakeholder workshops during the first half of 2025 to further unpack the project. Interested parties who wish to participate in the workshops are invited to confirm their interest by emailing their details to FSCA.funeralins@fsca.co.za.
The Joint Communication is available here.
