DailySun
The South African financial authorities have embarked on an extensive review of the legal framework governing funeral insurance in the nation.
The Financial Sector Conduct Authority (FSCA) and the Prudential Authority have recently announced that this regulatory assessment is in response to increasing concerns from both regulators and representatives of the funeral industry about the effectiveness and appropriateness of the current regulations.
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The annual value of the funeral insurance sector in South Africa is estimated to range from R15 billion to R20 billion.
As per data from June 2024 provided by the Association for Savings and Investment South Africa (Asisa), 15 million out of the total 35.2 million risk policies in the country consist of funeral products.
Prevalence of fraud
In spite of having regulatory measures in place, a significant number of illegal and unethical operators exist in the market. Misrepresentation of funeral policies and claims remains one of the primary forms of insurance fraud in the country.
Recent statistics from Asisa indicate that there were 2,561 cases of funeral claims fraud in 2023, involving 503 clients and 1,953 policies, culminating in losses of nearly R22 million. KwaZulu-Natal had the highest incidence of funeral claim fraud, totaling 742 cases.
Concerning the false representation of funeral claims, there were 672 incidents affecting 338 clients and 331 policies, resulting in a loss of R463,223.
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Megan Govender, the head of the Asisa Forensics Standing Committee, previously noted that funeral insurance has historically been an attractive target for fraudsters.
“Funeral insurance policies generally do not necessitate medical tests or assessments and are designed for prompt and easy payouts following the death of an insured family member, thus making this sector a prime target for criminals and dishonest individuals.”
As reported in the Insurance Crime Bureau’s 2024 annual report, a notable case involved an employee from a prominent funeral home who falsely claimed an unidentified corpse as a family member.
The theft of the body was prevented, and a suspect was arrested.
Additional suspects linked to a syndicate attempting to fraudulently claim nearly R600,000 in insurance payouts for the misidentified body have been identified.
Concerns within the industry
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In July 2011, the National Treasury published a policy document aimed at enhancing access for South Africans to affordable insurance products through the establishment of a Microinsurance (MI) Policy Framework. This framework enabled informal providers, such as funeral parlours, to offer insurance to consumers.
The framework also sought to protect consumers from exploitation and malpractice within the funeral insurance sector.
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Despite these measures, the existence of an unlicensed funeral insurance market and “ongoing poor practices” in the distribution of licensed funeral insurance remains concerning for the FSCA and the Prudential Authority.
The authorities are aware of a significant number of unlicensed entities, including funeral parlours engaging in the “self-underwriting” of insurance policies and unauthorized collection of “premiums” from clients, in contravention of insurance laws.
Conversely, funeral parlour representatives express dissatisfaction with the current legislative landscape, claiming that even though efforts have been made to reduce entry barriers for smaller businesses, licensing and capital requirements are still overly stringent, stifling industry growth.
The FSCA and Prudential Authority acknowledge these grievances and understand that the existing regulatory framework might hinder effective formalization and transformation of the industry.
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The authorities plan to host stakeholder workshops in the first half of 2025 to gather input and ensure a balanced regulatory approach in the future.
“These workshops will be crucial in shaping a practical and fair regulatory framework for the funeral insurance sector,” they remarked.
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