1. FUNERAL INSURANCE AND BENEFIT ARRANGEMENTS
NATIONAL TREASURY
Presentation to the Parliamentary Committee on Finance
6 September 2005
National Treasury

2. STRUCTURE OF PRESENTATIONS
National Treasury
Policy concerns
Overview of policy framework
FinMark Trust
Findings of the FinMark/Genesis study
Financial Services Board (FSB)
Update on legislation and enforcement

3. BACKGROUND
PCOF hearings on abuse in funeral benefits industry, November 2003
Implementation of FAIS Act
Licensing almost complete
Many funeral operators brought into FAIS net
FAIS Ombud’s office operating since 30 September 2004
Passing of Financial Services Ombud Schemes Act
FinMark study on funeral insurance (published April 2005)
FSB and NT workgroup established, to assess FinMark proposals. Workgroup meetings on-going.

4. POLICY CONCERNS Fraudulent practices
Growth in unregistered operators (intermediaries and funeral parlours)
Fraudulent policies
Incorrectly repudiated claims
Fraudulent practices by intermediaries
Lack of appropriate risk underwriting: over insurance, under insurance, part insurance
Weak regulation and enforcement (i.t.o. LTI Act, FAIS Act)

5. POLICY CONCERNS High level of lapsed policies and repudiated claims
Lack of education & understanding of nature of insurance
Perception that have bought a pre-paid/savings product
Poor disclosure by intermediaries
Contracts not in simple language
Repudiation due to non-disclosure of medical conditions
Group schemes: no disclosure of changes in policy terms
Affordability? Commission-driven
Appropriateness? Lapses when most needed (terminal illness or retirement)

6. POLICY CONCERNS Problems in policy design Cost concerns
Payment i.t.o. funeral services, no monetary equivalent
Have to use services of specific undertaker
Often offered as package deal, limits comparability
Limits competition, inferior service at higher price
Cost concerns
No limits on commissions
Price caps?
Capacity problems
Organisational and record-keeping problems in group schemes and intermediaries

7. POLICY FRAMEWORK Prudential soundness and financial stability:
Effective risk management models
Compliance requirements in proportion to systemic risk
Competition:
Improved disclosure and contestability
Encourage new entrants, reduce barriers to entry
Consumer protection:
Education, disclosure, market conduct regulation
Access and empowerment:
Appropriate and affordable products
BBBEE: enterprise development and financial co-operatives

8. POLICY INITIATIVES
Joint NT/FSB task team on funeral assistance business:
Appropriate prudential regulations/ risk management model
Appropriateness of insurance versus pre-paid model
Appropriate regulatory framework
Enforcement/regulatory changes (FSB)
Joint NT/FSB task team looking at cost issues in insurance:
Commission structures
Disclosure of costs
Improved competition
Financial Sector Charter:
Generic access standards: appropriate funeral insurance products
BBBEE: enterprise development and financial co-operatives