Paper
A Regulatory Review of Formal and Informal Funeral Insurance Markets in South Africa
How can funeral cover in South Africa be effectively regulated?
This report discusses various aspects of funeral cover, one of the most widely used financial services in South Africa. The report:
- Analyzes its market dynamics;
- Ascertains the nature and extent of abuses in this area;
- Recommends an appropriate regulatory framework.
The report identifies the following four broad categories of market players in this area:
- Burial societies;
- Funeral parlors;
- Administrators;
- Formal insurers.
It finds that:
- Burial societies and funeral parlors, which provide insurance, have to register under the Friendly Societies;
- All other bodies providing funeral cover must register under the Long-term Insurance;
- The provision of financial advisory and intermediary services is regulated under the Financial Advisory and Intermediary Services Act.
The report recommends that:
- A dedicated funeral insurance license should be created, with reduced entry and compliance requirements;
- Burial societies and funeral parlors should be removed from the operation of the Friendly Societies;
- The risk-pooling activities of burial societies should remain essentially unregulated, since they are self-adjusting and offer limited opportunities for abuse;
- Burial societies should be included in the draft Cooperatives Bill;
- Various enforcement agencies responsible for this market should cooperate and exchange information to protect consumers.
The report concludes by proposing a minimum of three checks, which include:
- Testing the funeral insurance license;
- Interacting with insurance and actuarial experts;
- Testing the implications of the proposed regulatory changes.
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