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‘We may see Farepak-style collapse in the prepaid funeral market’ – report

Paloma Kubiak
Written By:
Paloma Kubiak

More than a million people own a pre-paid funeral plan but an independent report suggests the growth could be due to pressure sales tactics.

Funeral plans allow consumers to plan and pay for a funeral. In the 10 years to 2016, there has been a fivefold increase in the number sold each year. As a result, 1.2 million UK consumers now own a plan.

However, independent consumer group, Fairer Finance, in partnership with Dignity Funerals, has published a report suggesting there’s a “perfect storm brewing” in the shape of misleading sales practices, lack of consumer understanding and a lack of regulation in the funeral sector.

While funeral plans look and feel like a financial services product, 75% of consumers wrongly believe their plan is regulated by the Financial Conduct Authority. As such, Fairer Finance said millions of pounds worth of consumers’ money could be at risk.

The report found the following:

Persistent and high-pressure sales practices: often through aggressive third-party sales intermediaries. A survey of 1,001 adults over the age of 50 shows that as many as six million people have been marketed to by funeral plan providers or their agents and 49% of those contacted over the phone have been re-contacted two or more times. 46% agreed they were being pushed to take out a plan when re-contacted.

Lack of clarity: Consumers don’t understand the differences between plan types, are confused by industry terms and are unaware of extra costs. Over 90% of contribution style funeral plan holders wrongly thought their plan guarantees to pay for cremation costs when this was not the case. People also don’t understand what is and isn’t guaranteed by their plan. Often those buying these plans are elderly and more vulnerable and aren’t around to check whether the product meets their expectations when a claim is made.

No safety net if a provider goes bust: Fairer Finance said there is poor transparency around what happens to customer money. While all money must be placed in a trust, or a whole of life policy, few providers are explicit about funding levels and where the money is invested.

Lack of consumer protection: The industry is subject to voluntary regulation by the Financial Planning Authority. Some providers are not part of this voluntary regulation scheme. Third party sales firms are not even subject to voluntary regulation. The group pointed out that consumers don’t have access to an Ombudsman service in the event their complaints are not resolved satisfactorily.

‘Worrying number of conduct issues and lack of consumer protection’

James Daley, managing director and founder of Fairer Finance, said; “Funerals have become ever more expensive over the past decade, and pre-paid plans can be a great way of locking in today’s prices, while also ensuring your family isn’t left with this significant financial burden after you’re gone. Although there are some reputable providers working in the interests of consumers, the sector has rapidly expanded over the last few years, with our research revealing a worrying number of conduct issues and lack of consumer protection.

“The combination of a fast-growing market fuelled by high pressure sales to a potentially vulnerable customer base is creating a perfect storm. A growing number of customers are likely to be let down when their plan is claimed on – with some funeral plan providers passing on significant extra costs to the families. And there is a concern that client money is not always being adequately looked after. Without intervention, we may yet see a Farepak-style collapse in this market, which leaves thousands of customers out of pocket.”

‘Highlights a clear difference in the quality of plans offered’

Responding to the report, Co-op Funeralcare, which is a significant provider of funeral plans, stated: “We welcome the call for greater regulation and importantly transparency in the funeral planning market. This is something we have sought to increase by making clear everything that is included within our plans and also by developing our own online comparison tables.

“The findings and recommendations in this report are consistent with our view of the funeral planning market and we believe this highlights a clear difference in the quality of plans offered by those organisations that not only provide the plan, but also deliver the funeral.

“To help drive a more consistent market, we are supportive of stronger and mandatory regulation of funeral plans by the FCA or by a reformed FPA. We will support these discussions in seeking to move to a better market overall for those looking to plan ahead.”