Can High Cancellation Fees in Funeral Plans Be Justified?

In the prepaid funerals market, high cancellation fees - which can reach up to £395 - are becoming a major cause for concern. This issue might not yet be under scrutiny from the Financial Conduct Authority (FCA), but there is a question about whether these fees are justified, especially since firms like Aura and Dignity have eliminated cancellation charges entirely. 

Given that some companies are ditching cancellation fees, it becomes harder for others to justify them. The higher they are set, the more they become a barrier to customers switching, which as well as being anti-competitive also feels contrary to the principles of Consumer Duty.

While marketing acquisition costs in the funeral plan market are relatively high, excessive cancellation fees can begin to appear more like penalties. With the FCA’s Consumer Duty focusing on fair treatment and fair value for customers, there’s a reasonable argument that high cancellation fees work against good customer outcomes. Their existence feels increasingly at odds with the push for more consumer-focused policies, especially given the sensitivity around funerals. For a family already facing emotional distress, a high cancellation fee may prove a significant financial burden if they wish to change or exit a plan.

Ultimately, lowering or eliminating cancellation fees would be a proactive step for companies looking to build trust in a market which has not been short on scandals in recent years. It would enable consumers to exit a plan without a high financial penalty, enabling better outcomes for consumers. Firms sticking with high fees may find themselves out of step with the market and facing consequences from the regulator.