Make sure it's fair, says financial sector authority on funeral policy increases

The Financial Sector Conduct Authority (FSCA) on Wednesday expressed concern at the high premium increases being implemented by insurers on funeral policies.

“While the FSCA recognises the impact of Covid-19 on mortality rates and funeral policy claims, the authority expects insurers to ensure fair outcomes for policyholders, and reminds insurers of their obligations pertaining to premium increases,” it said in a statement.

The authority said premiums must be priced correctly at the inception of the policy so that any increases which may be implemented would still result in fair outcomes for policyholders, with the policy continuing to perform as expected.

It said the premiums set by insurers must be actuarially sound, in line with the Long-term Insurance Act. The law provides that a long-term insurer shall not enter into any particular kind of long-term policy unless the statutory actuary is satisfied that the premiums, benefits and other values thereof are actuarially sound.

The FSCA said it has received complaints that some insurers are increasing premiums more than once for the same policy within a 12-month period, even though the terms and conditions allow only for increases on the anniversary of the policy.

“This falls foul of rule 15(1) of the policyholder protection rules, which state: 'A premium payable under a policy may only be reviewed if the policy provides for a review and states the frequency at which and the circumstances in which a review will take place,'" the authority said.

Some of the recent premium increases may relate to historic books of the businesses which were underpriced from the inception of the policies, the authority said.

“It is the view of the FSCA that if policies were not priced correctly at inception of the policy and exorbitant increases are thereafter implemented due to the impact of Covid-19 or underwriting losses, this would result in unfair outcomes for policyholders.”

The authority said it expected insurers who intended to increase policy premiums on existing policies to consider the existing requirements and to follow appropriate processes.

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