Regulators Review Funeral Insurance Regulations in South Africa
South Africa’s financial regulators have commenced a comprehensive review of the legal framework governing funeral insurance in the country. The Financial Sector Conduct Authority (FSCA) and the Prudential Authority have issued a joint statement indicating that the regulatory review is in response to growing concerns among authorities and funeral parlour industry representatives about the effectiveness and suitability of the current regulations.
The funeral insurance sector in South Africa is valued at between R15 billion and R20 billion annually, with 15 million of the 35.2 million risk policies in the country being funeral products, according to statistics from the Association for Savings and Investment South Africa (Asisa). Asisa has also highlighted the issue of fraud in the funeral insurance sector, noting that funeral claims and misrepresentation of funeral policies are among the highest incidences of insurance fraud in the country.
Fraudulent Practices in the Funeral Insurance Sector
Funeral insurance fraud has been a persistent issue in South Africa, with the Insurance Crime Bureau’s 2024 annual report revealing a case where an employee of a prominent funeral parlour fraudulently identified an unknown body as his relative. The attempted body theft was halted, and a suspect was arrested. Furthermore, additional suspects have been identified as part of a syndicate attempting to claim nearly R600 000 in fraudulent insurance payouts for the misidentified body.
The existence of fraudulent practices in the funeral insurance sector is not limited to unlicensed entities; even licensed funeral parlours and insurance companies engage in poor practices, such as the self-underwriting of insurance policies and the unauthorised collection of “premiums” from clients, which are in contravention of insurance legislation. The FSCA and the Prudential Authority have expressed concern regarding these practices and the lack of regulation in the industry.
The Need for Regulatory Framework Reform
The funeral insurance market in South Africa is plagued by concerns about the ability of regulatory frameworks to address and prevent fraudulent activities in the industry. Megan Govender, convenor of the Asisa Forensics Standing Committee, notes that funeral insurance policies are particularly vulnerable to fraud because they do not require medical tests or examinations, allowing criminals and dishonest individuals to take advantage of this arrangement.
Both the FSCA and Prudential Authority have acknowledged the concerns about the current regulatory framework, specifically the licensing and capital requirements being too stringent, stifling growth in the sector. In response, they plan to host stakeholder workshops in the first half of 2025 to gather input and ensure a balanced approach to future regulations, ultimately aiming to shape a pragmatic and fair regulatory framework for the funeral insurance sector.
