The financial regulatory bodies in South Africa have launched a comprehensive assessment of the legal framework governing funeral insurance within the nation.

The Financial Sector Conduct Authority (FSCA) and the Prudential Authority have announced in a recent communiqué that this regulatory examination is a response to escalating concerns from regulators and representatives of the funeral industry about the effectiveness and appropriateness of the current regulations.

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The annual valuation of South Africa’s funeral insurance industry is estimated to be between R15 billion and R20 billion.

Data from June 2024 from the Association for Savings and Investment South Africa (Asisa) indicates that 15 million of the total 35.2 million risk policies in the country pertain to funeral products.

Prevalent fraud

Despite the existence of a regulatory framework, many illegal and unethical operators are active in the market. The distortion of funeral policies and claims ranks among the most common types of insurance fraud in the nation.

Asisa’s latest data reveals that in 2023, there were 2,561 recorded instances of funeral claims fraud involving 503 clients and 1,953 policies, leading to losses nearing R22 million. KwaZulu-Natal was reported to have the highest number of funeral claim fraud cases, totaling 742.

In terms of misrepresentation of funeral claims, there were 672 cases involving 338 clients and 331 policies, culminating in a loss of R463,223.

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Megan Govender, the head of the Asisa Forensics Standing Committee, noted that funeral insurance has consistently been viewed as a vulnerable target for fraudsters.

“Funeral insurance policies usually do not necessitate medical assessments or evaluations, and are designed for swift and straightforward payouts upon the passing of an insured family member, rendering this sector a prime target for criminals and unscrupulous individuals.”

As detailed in the Insurance Crime Bureau’s 2024 annual report, a significant incident involved an employee at a well-known funeral establishment who falsely identified a body as that of a relative.

The body theft was intercepted and a suspect was arrested.

Additionally, other suspects connected to a syndicate attempting to fraudulently claim nearly R600,000 in insurance payouts for the misidentified body have been identified.

Concerns within the industry

In July 2011, the National Treasury published a policy document aimed at enhancing access for South Africans to affordable insurance products through the development of a Microinsurance (MI) Policy Framework. This framework permitted informal providers, like funeral homes, to offer insurance to consumers.

The framework also sought to protect consumers from exploitation and maltreatment within the funeral insurance sector.

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Despite these safeguards, the existence of an unregulated funeral insurance market and “ongoing poor practices” in the licensed insurance sector are concerning to the FSCA and the Prudential Authority.

Authorities are aware of a considerable number of unlicensed entities, including funeral homes that engage in the “self-underwriting” of insurance policies and unauthorized collection of “premiums” from clients, which contravenes insurance regulations.

On the other hand, the funeral home sector has expressed frustrations with the current legislative framework, asserting that although attempts have been made to relax entry barriers for smaller businesses, licensing and capital demands remain overly stringent, impeding sector growth.

The FSCA and Prudential Authority acknowledge these concerns and understand that the existing regulatory framework may hinder effective formalization and transformation of the sector.

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The authorities plan to conduct stakeholder workshops in the first half of 2025 to gather input and ensure a balanced regulatory approach moving forward.

“These workshops will be vital in developing a practical and fair regulatory framework for the funeral insurance sector,” they state.

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