The Financial Sector Conduct Authority (FSCA) and Prudential Authority (PA) are tackling challenges in the funeral insurance industry with a collaborative initiative to review and refine the industry’s regulatory framework. Their goal? To protect vulnerable consumers while fostering sector growth and innovation.
Building a better framework for funeral insurance
In Joint Communication 7 of 2024 , issued last month, the FSCA and PA highlighted the urgent need to review and improve South Africa’s funeral insurance distribution framework.
This effort directly addresses long-standing concerns from the funeral parlour sector about regulatory gaps and inefficiencies. By launching a collaborative project, the FSCA and PA aim to provide clarity, resolve challenges and reshape the framework to better serve funeral parlours, policyholders and the broader insurance market.
Why the current framework needs change
Since the introduction of the South African Microinsurance Regulatory Framework in 2011, strides have been made to formalise informal insurance providers, like funeral parlours, to improve access to affordable insurance for low-income households. However, challenges persist.
According to the funeral parlour sector, these issues include:
- The transition of smaller funeral parlours into licensed insurers has been slow.
- High capital requirements create significant barriers to market entry.
- Restrictive underwriting criteria limit operational flexibility.
- Changes to the definition of “group” in the Insurance Act have raised concerns about unfairly shifting control of client assets from funeral parlours to insurers.
Adding to these issues, the FSCA and PA have flagged additional challenges:
- Unlicensed entities self-underwriting insurance policies.
Regulatory interpretations that hinder compliance and effective operations. - Poor industry practices leading to unfair outcomes for vulnerable consumers.
- A lack of role clarity within the funeral insurance distribution chain.
A new approach: collaboration and reform
This project designed to address these challenges while promoting compliance and encouraging innovation. The initiative focuses on four key areas:
- Regulatory framework review: Identifying and addressing gaps to create a more effective insurance regulatory framework.
- Compliance awareness and capability support: Offering training and resources to help funeral parlours navigate regulatory requirements.
- Supervision and enforcement: Strengthening oversight to ensure compliance and fair customer outcomes.
- Consumer empowerment: Improving financial literacy and awareness among funeral insurance customers to help them make informed decisions.
Engaging stakeholders for solutions
Central to this initiative is the FSCA and PA’s commitment to collaboration. They plan to host workshops in the first half of 2025, inviting input from stakeholders with a material interest in the matter, such as funeral parlours, insurers, intermediaries and affected consumers. These workshops will shape a balanced regulatory framework that prioritises consumer protection while fostering innovation and meeting market needs.
By addressing these issues, the FSCA and PA aim to create a fair, formal funeral insurance market that acknowledges the vital role of funeral parlours. Their commitment to enhancing the regulatory framework will not only protect vulnerable consumers but also uphold the integrity of the financial sector and encourage innovation.
For more information or to participate in the stakeholder workshops, contact the FSCA at FSCA.funeralins@fsca.co.za