Why must funeral policies be underwritten by an insurer?

Isaac Mudau

South Africa’s funeral insurance industry seems to be in the news often for all the wrong reasons. According to the latest Long-Term Insurance Ombudsman’s annual report, published in May 2020, the bulk of the complaints received in 2019 related to funeral insurance policies, with consumers complaining about unpaid claims and poor service.

What is more, the Financial Sector Conduct Authority (FSCA) regularly warns consumers against funeral insurance providers that are not underwritten by a registered longterm insurer. The truth is, though, that funeral insurance is by far the most popular financial product among South
African consumers. Funeral products play a fundamentally important societal role, both culturally and economically. It is therefore of cardinal importance that policyholders should enjoy the peace of mind of knowing their funeral plan is underwritten by a credible, reliable insurance provider.

No guarantee without underwriting!

The purpose of funeral insurance is to provide cover to help pay for the costs of funeral services, usually provided by a funeral parlour. A funeral policy must be underwritten by a licensed long-term insurer to ensure that the policyholder and their beneficiaries are guaranteed of their benefits being paid to them in the event of a valid claim.

The Insurance Act sets out the characteristics of a life insurance policy underwritten under the funeral class of life insurance business, as set out in Table 1 of Schedule 2 of the Act. Section 5 (1) of the Act prohibits any unlicensed person from conducting insurance business in South Africa. This means that no funeral policy can be sold unless there is a licensed insurer on-risk for that policy. Any policy that is not underwritten by a licensed insurer is not legitimate in terms of the Act, putting consumers at risk of not getting their policy benefits should they claim.

The customer’s perspective

What factors should your clients consider before taking out funeral insurance? The FSCA regularly advises end-consumers to check that the entity they are conducting business with, whether this is a brokerage, funeral parlour or an individual, is registered with the Authority to provide financial advisory and intermediary services. They should also check which category of advice the agent or representative they are dealing with is authorised to provide.

Consumers can verify whether or not an institution or person is authorised to render financial services by checking the FSCA website (www.fsca.co.za) or calling them on 080020 37 22. The law also states that every policy document must include the name of the licensed insurer who is underwriting the policy. Once the policy document is received, consumers can check for the insurer’s details and contact the insurer to verify that the policy in question is indeed underwritten.

Breaking the law

There are serious repercussions for buying funeral insurance from an unregistered or unauthorised financial services provider (FSP). Insurance is about risk. When consumers buy funeral insurance from a registered FSP, the benefits in their policies are guaranteed as long as they have fulfilled all their policy obligations, such as paying their monthly premiums.

However, if a consumer buys funeral insurance from an unauthorised FSP, then the policyholder and beneficiaries will not be guaranteed payment of benefits in the event of a claim. Furthermore, consumers who purchase funeral insurance from an unregistered FSP may not have easy recourse
to the FCSA or Long-Term Insurance Ombudsman should they experience problems with the underwriter or broker.

Whether you are in the business of selling funeral products or are looking to buy a funeral policy, be sure to do your research to make sure that both the product provider and sales agent you are dealing with are registered, the policy appropriately written.

This article first appeared on page 28 of the FANews Funeral Insurance Digital Magazine published on 16 April 2021 and is attributed to Isaac Mudau, BrightRock Executive: Product Operations.

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