Customers will lose money if more providers leave the funeral plans sector in the run-up to incoming regulation, the chief executive of the Funeral Planning Authority has warned.
Graeme McAusland told FTAdviser his “biggest worry” was that the number of firms that will not get through the authorisation process will cost customers part of their prepaid plans.
In instances where firms choose not to get authorised, wind down and then find they cannot sell their client books, McAusland said he feared customers would not be refunded as much as they put in to the plans they took out.
A funeral plan allows someone to pay upfront for theirs or their relative’s funeral before they die. The product could be used by those with no family, by those caught in family disputes, or by parents of children with severe disabilities who want to put something in place before they or their child dies.
So far, three funeral plan providers have pulled their applications to become regulated by the Financial Conduct Authority. “Our expectation is there will be more [firms] that don’t make it through the gate,” said McAusland.
Safe Hands Funeral Plans’ exit was announced by the FCA earlier this week (February 15). On its website, the provider said it had “made the decision not to continue to provide funeral plan services” after July 29, which is when the FCA will start regulating the pre-paid funeral plans sector.
FTAdviser approached Safe Hands Funeral Plans for comment.
Two Yorkshire-based firms, Eternal Peace Funeral Plans and PS Cremations Funeral Planning, have also withdrawn their applications. In total, there are 72 firms listed, 30 of which are yet to submit their application.
McAusland said he has been trying to warn the industry for some time that there is a “transition risk”. Existing firms which don’t or can’t meet the FCA’s criteria will have to transfer their client books.
While some can sell up if they wish to wind down, others will not, according to McAusland. “There might not be enough money in the plans to make them worth selling, or newly regulated firms might worry about how certain plans were sold.”
In cases where firms wind up without selling, they will refund customers’ plans. “The payments to customers may well be less than they paid in,” said McAusland.
Whilst it’s still early days, the worry is a “reasonably significant” number of customers will be impacted, as the deadline looms and firms have less and less time to make commercial arrangements pending the submissions and outcomes of their authorisation applications.
“Some view it as the price to clean up the market, but this doesn’t help the consumer,” said McAusland.