How FCA regulation is affecting the funeral plan market

On 29 July 2022, the Financial Conduct Authority (FCA) began regulating firms in the prepaid funeral plans sector.

The key changes brought about by regulation are:

• Consumers are now protected by the Financial Services Compensation Scheme (FSCS). This means that if a funeral plan provider goes bust, the funeral will be carried out as planned or you will be paid compensation.

• Consumers can now refer complaints regarding funeral plan providers to the Financial Ombudsman Service.

• Cold calling by funeral plan providers is now banned.

• Funeral plan providers must now guarantee to deliver a funeral unless the customer dies within two years of taking out the plan, in which case a full refund will be offered.

• Paying commission to intermediaries, such as funeral directors, is now banned. This is to ensure products represent fair value.  

• Customers are now guaranteed to receive a full refund if they cancel a plan within 30 days of purchase, or pay only a reasonable charge if they cancel later on. 

FCA regulation means customers are better protected. It also has implications for providers. A number of providers have left the market after failing to obtain authorisation from the FCA. Several brands, such as Age Co and Simplicity Cremations, have removed their products temporarily.

The Consumer Duty

As well as facing FCA regulation, funeral plan providers must conform to the FCA’s upcoming Consumer Duty. One of the requirements of the Consumer Duty is that providers demonstrate they are offering ‘fair value’ to consumers.

This could be particularly challenging for the funeral plan market, because of the greatly differing costs of funerals across the UK. If a provider charges a flat plan fee for the whole country, but their costs are vastly different depending on where the funeral is held, this arguably does not represent ‘fair value’ for people in areas of lower cost.

Regional pricing could become more common as a result of the Consumer Duty, to ensure customers are paying a price in line with the cost of a funeral in their region.

The average cost of a prepaid funeral plan in our ratings is currently £3,613, a slight increase from the average in May of £3,582. We expect the cost of prepaid funeral plans will continue to increase with inflation, but this should not come at the expense of customers receiving fair value. Once the new Consumer Duty comes into force next year, the pressure on firms with high charges to lower their prices will increase.

The FCA has also stated that cancellation fees must be ‘reasonable’. Before regulation, the average cancellation fee in the market was £370. This has now fallen to £198. Co-op Funeralcare has halved its cancellation fee to £125, while Dignity has scrapped its £249 cancellation fee entirely.

In light of the Consumer Duty, brands will have to justify high cancellation fees. Some may follow Dignity's decision to remove them, while others that are yet to already will likely reduce them.

If you would like to talk to us about how to meet the Consumer Duty challenge on 'fair value' - or on the other required outcomes - please get in touch at corporate@fairerfinance.com