The financial regulators in South Africa have embarked on a comprehensive review of the legal structure governing funeral insurance throughout the nation.
According to a recent announcement from the Financial Sector Conduct Authority (FSCA) and the Prudential Authority, this regulatory assessment is prompted by growing apprehensions from both regulators and representatives from the funeral industry regarding the effectiveness and appropriateness of the current regulations.
ADVERTISEMENT
CONTINUE READING BELOW
Read: FSCA calls for banks and insurers to implement consumer education programs
The funeral insurance sector in South Africa is valued at approximately R15 billion to R20 billion annually.
Data from June 2024, provided by the Association for Savings and Investment South Africa (Asisa), indicates that 15 million out of the 35.2 million risk policies in the country consist of funeral products.
Prevalence of Fraud
Even with a regulatory framework in place, a significant number of unethical and unauthorized operators exist within the market. Misrepresentation of funeral policies and claims ranks among the most prevalent forms of insurance fraud in South Africa.
Asisa’s latest statistics show that in 2023, there were 2,561 reported cases of funeral claims fraud, affecting 503 clients and 1,953 policies, resulting in losses nearing R22 million. KwaZulu-Natal registered the highest incidents of funeral claims fraud, totaling 742 cases.
In terms of claim misrepresentation, there were 672 occurrences involving 338 clients and 331 policies, leading to a loss of R463,223.
Listen:
What has the FSCA achieved in 2024?
FSCA update: Crypto approvals and fraudulent funeral parlours
Earlier, Megan Govender, the convenor of the Asisa Forensics Standing Committee, emphasized that funeral insurance has historically been targeted by fraudsters.
“Funeral insurance policies generally do not mandate medical evaluations, and they are structured for quick payouts upon the death of a family member, which makes this sector particularly attractive for criminals and unscrupulous individuals.”
As per the Insurance Crime Bureau’s 2024 annual report, a notable case involved an employee at a prominent funeral home who deceitfully identified an unrecognized corpse as a family member’s.
The attempt to steal the body was thwarted, and a suspect was arrested.
Authorities have also identified additional suspects in a syndicate trying to fraudulently claim nearly R600,000 in insurance for the misidentified body.
Concerns from the Industry
ADVERTISEMENT:
CONTINUE READING BELOW
In July 2011, the National Treasury published a policy document designed to improve South Africans’ access to affordable insurance products through the establishment of a Microinsurance (MI) Policy Framework. This framework enabled informal providers, like funeral homes, to offer insurance to consumers.
The framework also aimed to protect consumers from exploitation and abuse within the funeral insurance sector.
Read:
Self-insurance – does it work?
Insurers disburse billions in death claims
Fraud strategies to watch for this holiday season
Despite these initiatives, the existence of an unlicensed funeral insurance market and ongoing “poor practices” within the licensed sector raises significant concerns for the FSCA and the Prudential Authority.
The authorities are aware of a considerable number of unlicensed entities, including funeral homes engaging in unauthorized “self-underwriting” of insurance policies and collecting “premiums” from clients, which is in violation of insurance legislation.
On the other hand, the funeral parlour industry has voiced its dissatisfaction with the current regulatory framework, asserting that while there have been efforts to lower entry barriers for smaller businesses, the licensing and capital requirements remain excessively restrictive, limiting growth in the sector.
The FSCA and Prudential Authority recognize these concerns, noting that the prevailing regulatory structure might hinder the effective formalization and evolution of the sector.
Read: Food vs funeral cover: Sanlam’s mass market drives policy lapses
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 play a vital role in establishing a practical and fair regulatory structure for the funeral insurance industry,” they remarked.
Stay informed with Moneyweb’s extensive finance and business news on WhatsApp here.
