Co-op highlights ticking time bomb in the funeral plan market

01 August 2018

HM Treasury response highlights pressing need for FCA regulation of funeral plans
Rise of non-integrated providers risks driving the planning market to breaking point by 2025

As the UK’s leading funeral plan provider, Co-op’s Funeralcare and Life Planning business has responded to HM Treasury’s call for evidence on the pre-need funeral market, reiterating its calls for urgent FCA regulation of the sector.

Co-op’s response highlights that based on its experience in providing over 68,000 funeral plans annually and 100,000 funerals, the current voluntary model of regulation for funeral plans is not sufficient to meet the needs of a fast growing market.

The Co-op has outlined to HM Treasury that there is a pressing need in the funeral plan market for increased transparency and a ban on aggressive sales. It has also explained that the FCA is the only body which has the expertise, consumer recognition and resources to provide this important protection to consumers.

According to the national funeral provider, the new regulatory framework should address the areas where the current funeral plan market does not adequately protect the interests of consumers including:

Transparency: Consumers do not understand the differences between the wide variety of products currently available, too many consumers are poorly informed of the features and limitations of their plans, and the hidden costs that their relatives may have to bear, and commission levels and incentivisation arrangements are not always apparent.

Sales practices: Potentially vulnerable consumers are being subjected to high pressure and misleading sales practices including cold calls

Security of client money: Some plans are invested in vehicles that are underfunded or not sufficiently secure, and many consumers are unable to get a true indication of the financial health of the trust or policy which their money has been placed in for the provision of a future funeral service.

Oversight and recourse: The existence, role and limitations of the Funeral Planning Authority are poorly understood by the public. Access to the FSCS is limited and complicated (and for many funeral plan holders there is no FSCS recourse available at all), and equivalent redress and review processes leaves consumers significantly exposed in the event of insolvency of a plan provider.

Commenting on the Co-op’s view, Matt Howells, MD for Co-op Life Planning and Legal Services said:

“When sold fairly and responsibly, funeral plans are an important means for consumers to ensure that future funeral costs can be met without placing financial stress on bereaved families or requiring recourse to public funds.

“However, by buying a funeral plan, consumers are entrusting their funeral plan provider with a significant sum of money for a period of potentially many years. In many cases, those buying funeral plans (many of whom are potentially vulnerable consumers) will not appreciate that their funeral plan may not cover the full cost of a funeral.

“There has been a significant increase in demand for funeral plans over recent years. This has been accompanied by a growing number of newly established funeral plan providers who have no experience of delivering funerals and who make money purely from the sale of the funeral plan itself.

“We believe that some of these providers are engaging in sales practices and investment strategies which are focussed on short-term financial profit to the detriment of consumers. Given that many of these new plan providers have only been established for a short period of time and the average time between purchase and redemption of a plan is approximately 7 years, the investment strategy, commission levels and business model of these providers remains unproven, particularly if placed under financial strain.

“FCA oversight of funeral plan providers is the most appropriate route to provide consumers with the protection that they should be entitled to expect when entrusting others with their money.”

Our advice to consumers is always buy a plan directly from a reputable Funeral provider that will responsible for providing the end services.

Due to the comprehensive nature of Co-op’s plans over 68,000 families have purchased a plan in 2017 and a further 20,000 families benefit financially on average each year from their loved one having put in place a plan with Co-op Funeralcare. Independent personal finance experts have also recognised our plans as amongst the best on the market.

Co-op’s response to HM Treasury follows its recent submission into to the CMA on the scope of its review of the funeral market. Co-op’s response to the review focuses on four key areas:

The need for greater transparency for clients so they understand the quality and standards of care they can expect when purchasing a funeral for their loved one
The role regulation could play in achieving minimum standards of care across the industry
Extending the scope of the CMA review to consider how funeral directors compete for the redemption of funeral plans
The market power exercised by crematoria and the impact of this on the fees charged