Our 3rd annual review of independent funeral directors, takes a snapshot of views just over a year after the funeral plan sector was regulated by the FCA. 140 funeral directors took part and in doing so FSE were delighted to donate £500 to Hospice UK, which was very gratefully received.

Key headlines from this year's survey:

  1. Funeral directors are still clearly coming to terms with the aftershocks of regulation and realisation of the extent of the ongoing requirement (whether it be sales process, staff training, deliberation over the right regulatory model).
  2. Reported funeral plan sales down year on year.
  3. Plan provider satisfaction scores lower year on year, albeit holding up relatively well.
  4. We see variation in satisfaction depending on the AR or IAR model being followed.
  5. And we see that direct cremation (both at need and pre-need) continues to substitute traditional funerals.

Overall, and based on a lot of comment we received, it’s no surprise some funeral directors may be considering whether ‘the grass is greener elsewhere’ with a different plan provider or whether to stop selling plans altogether.

FCA regulation adding complexity to insult

This year’s survey illustrates the aftershocks of FCA regulation of funeral plans, and increasing pressure that growth in direct cremation presents.

Feedback from funeral directors told us how they felt about the current market situation and it’s clear from these comments FCA regulation has been complex, time consuming, and challenging enough for some to exit the funeral plan market completely.

The % not selling plans is up significantly year on year. Pre regulation 3% were not selling funeral plans vs 12% this year. 8% say they no longer sell them as a direct result of FCA regulation.

We know that previously 21% said ‘selling funeral plans might be more trouble than its worth’, although by not taking part in this market it guarantees competitors are gaining future funerals at their expense. Those most likely to leave the market are smaller firms with larger firms and dedicated direct cremation firms set to benefit.

Funeral directors overall do still recognise the importance and value of FCA regulation and remain more positive about sales (33%) than negative (24%), with 43% feeling about the same. 77% do also say they feel it is safer for consumer to buy funeral plans now FCA regulates the sector.

How do you feel about selling funeral plans now the market is regulated by FCA?

I feel more positive and expect to sell more 33%
I feel no different and expect to sell the same 43%
I feel less positive and expect to sell less 24%

Regulatory regime hits provider satisfaction scores, with new FCA rules set to raise the bar further

It’s no surprise funeral directors gave plan providers lower satisfaction scores this year (on average down by 5%) given everything the sector has faced. Satisfaction has actually held up relatively well considering the growing realisation among funeral directors of the extent of ongoing compliance work and monitoring required.

The ability to absorb the new regulatory regime and build a safer sector for consumers will come under further pressure as FCA Consumer Duty rules bite, with FCA’s CEO letters sent out to plan providers in September, setting out the high bar they expect them to achieve in the coming months.

What is most important to funeral directors from plan providers has remained broadly the same; with plan flexibility, redemption values and redemption processes once again top of the list. Unsurprising the quality of regulatory guidance and support also features relatively highly.

As well as the % of funeral directors who have exited the funeral plan market, another concerning aspect is the jump in those considering switching their provider. This has risen from 7% in our 2022 survey to 15% this year. Complex sales processes and the additional time needed for regulation were key reasons given, but it remains to be seen if a switch in provider would actually solve those issues, given FCA require a consistent compliance benchmark. The grass is not necessarily greener elsewhere albeit the quality of regulatory help and support may be better.

Traditional plan sales down, direct cremation up

A backdrop of bureaucratic complexity and significant business impact from regulation has resulted in funeral directors reporting overall funeral plan sales down.

A net -15% of funeral directors report lower overall sales over the past year. In contrast a net 72% of funeral directors suggest direct cremation funeral plan sales have increased year on year.

Confirmation is awaited from new trade body, National Association of Funeral Plan Providers, but overall funeral plan sales would be expected to be lower for 2022 than 2021.

Feedback shows more and more funeral directors are protecting their market share by adding direct cremation to their websites and marketing materials and enhancing the direct cremation proposition they offer. 76% say having direct cremation within their proposition suite is important.

Direct cremation funeral plan sales are around 15%+ among funeral directors in the survey, yet around 40% of all market funeral plan sales are for direct cremation. This highlights that the big direct response, high TV ad spenders, are gaining market share at their expense.

Has ‘at-need’ direct cremation growth stalled?

One other interesting aspect of this year’s survey was the fact that funeral directors reported that the % of ‘at need’ direct cremations performed in the last year was almost identical to the previous year’s estimate of around 11%. We have also seen other credible industry data to suggest volumes may have increased marginally. But direct cremation has not grown as maybe would have been expected, all other consumer preference data we see suggests it will continue to grow.

The risk of smaller independent funeral directors leaving the market

It’s clear to us, that some of the gloss and positivity felt by funeral directors towards the FCAs arrival has been stripped back a little since regulation was implemented.

Funeral Plan providers and funeral directors are yet to fully settle into a rhythm, evidenced in the statements about how positive FDs feel, but also in the satisfaction scores from FDs towards their funeral plan providers. Those funeral directors that are operating under an IAR status are, on average, less happy than those in an Appointed Rep status.

Size and scale might also be important, if you are a funeral director with 20 funeral plan sales or fewer, you’re far more likely to be less happy, have suffered a greater drop in funeral plan sales and more inclined to switch provider/exit the market.

FSE warned the FCA from the outset about disenfranchising the small independent funeral director and this should now be a concern for funeral plan companies, trade bodies, the regulator and most of all the independent funeral director.

With over 20% of all deaths funded/pre-arranged by a funeral plan, if independent funeral directors choose not to participate in the pre-need market, they are in effect reducing their target audience by more than a fifth. Year on year they can expect their local market share to dwindle.

Trade bodies should be concerned about the erosion of smaller independent funeral directors participating in the market, as it is likely to see sales distribution power shift towards the largest firms and remote players – in other words this will start to distort the market in their favour. What concessions should trade bodies be seeking on behalf of smaller FDs to make their life easier to make it worth their while to offer funeral plans?

Regulators will also need to carefully consider the rules, and implementation of Consumer Duty to prevent exacerbating this position further.

Time to level up Funeral Plan and Over 50 markets

If it’s any consolation to funeral plan providers – the after-shocks in the funeral plan market have coincided with a massive slump in sales in the Over 50s plan market, due predominantly to strategic exits from that market and falls in advertising spend.

These two markets meet the same need, but the funeral plan market does it better. So it’s time for trade bodies and plan providers to work together to provide evidence to the regulator that customer need is much better fulfilled with a funeral plan.

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