The Long-term Insurance Amendment Bill has moved a step closer to becoming law, but although it aims to protect consumers from paying for multiple Funeral Class policies that provide no additional benefit, questions remain over whether it tackles the biggest problems facing the funeral insurance market.
The Amendment Bill, which was introduced to the National Assembly on 5 June, is largely unchanged from the draft legislation published for public comment last year. If enacted, it would require insurers to identify multiple Funeral Class policies covering the same life event before issuing new policies, make detailed disclosures to policyholders and beneficiaries, and review existing books of business.
Lawyers say insurers should already be preparing for those changes. But industry experts argue that the proposals address only part of the problem, leaving broader concerns around advice, product design, and multiple policies issued across different insurers unresolved.
Why are multiple funeral policies a problem?
One of the biggest frustrations in the funeral insurance market is that some policyholders only discover they have been paying for multiple Funeral Class policies with the same insurer that provide no additional benefit when they submit a claim.
The issue stems from limits that already exist.
Under the current Prudential Standards, the aggregate benefit payable under Funeral Class policies issued by the same insurer for the same life event is generally capped at R100 000.
That means taking out additional Funeral Class policies with the same insurer does not necessarily increase the benefit payable. Once that limit has been reached, policyholders may continue paying premiums for cover that provides no additional value, only discovering the problem when they submit a claim.
The cap applies to Funeral Class business under the Prudential Standards and is intended to distinguish funeral insurance from broader life insurance products, which are subject to different rules.
According to the memorandum accompanying the Bill, the Long-term Insurance Act does not require a life insurer to determine whether an applicant already has funeral cover for the same life event with the same insurer. The proposed amendments are intended to move that conversation from claims stage to the point where the policy is sold.
What would change?
The Bill does not change the R100 000 limit.
Instead, it would empower the Financial Sector Conduct Authority to make rules requiring insurers to identify whether an intended beneficiary under a new funeral policy is already covered under another Funeral Class policy issued by the same insurer.
If multiple Funeral Class policies covering the same life event are identified, insurers would have to explain the consequences before another policy is issued.
That explanation would have to be provided in writing and include the cost of each policy, the maximum benefits payable, and any applicable benefit limits. The same information would also have to be provided to every affected beneficiary.
And it doesn’t stop with new business.
Within 12 months of the legislation coming into operation, insurers would also have to contact existing policyholders and beneficiaries, explain the implications of multiple Funeral Class policies covering the same life event, and give policyholders the opportunity to cancel affected policies within 31 days of receiving that information.
The Bill also makes it clear that simply failing to disclose another funeral policy would not, by itself, invalidate any of the affected policies.
Getting ready starts now
Although the Bill must still make its way through Parliament, Paull Lawrence, general manager and compliance officer at Moonstone Compliance and Risk Management, who analysed the original draft Bill for Moonstone in 2024, believes insurers should already be considering what implementation would involve. He is less convinced, however, that some of the proposals will prove practical to implement.
Lawrence says one of the practical difficulties is that “the insurer doesn’t always have full particulars of the beneficiary unless it is the policyholder and the claim is on other life events (parent, spouse, wider family and children, etc)”.
He also notes that some policies are marketed as funeral policies but are sold under the Risk Class, and “these are not included in the Bill”.
On the need to prepare, Bowmans reaches a similar conclusion. Christine Rodrigues, a partner in the firm’s financial services regulatory practice, and candidate legal practitioner Shatakane Smela say insurers should be reviewing their systems, processes, and internal policies in anticipation of the proposed changes.
That is about much more than updating policy wording.
The proposed amendments would require written disclosures not only to new applicants, but also to affected beneficiaries and existing policyholders. In practice, that could mean reviewing existing books of business, identifying multiple Funeral Class policies covering the same life event, and communicating with customers who may have held funeral policies for years.
Lawrence says insurers’ systems will have to change, although it is still uncertain “how significant or complex” those changes will ultimately be. He adds that the retrospective exercise will involve considerably more than simply notifying customers.
“The Bill doesn’t indicate that the policies must be cancelled, but that the client must be informed of the policies, benefits, and premiums, etc.”
He says insurers will have to establish a process that allows policyholders to identify which would be the most beneficial policy/policies to keep. Lawrence notes that insurers were already looking at systems to evaluate all policies of a client, identify which should be cancelled, and possibly provide a single replacement policy.
Bowmans says waiting until the legislation is enacted could leave insurers scrambling to comply. In the firm’s view, insurers should be preparing now because failure to comply with the proposed disclosure requirements would not only prejudice policyholders but could also leave insurers in breach of their statutory obligations.
The Bill also introduces consequences for insurers that fail to comply. Where the required disclosures are not made, policyholders would be entitled to cancel the affected policy and receive a refund of premiums or other monies paid, subject to deductions permitted by law. The refund, however, may not exceed the value of the funeral policy benefits.
Will it solve the problem?
Many of the concerns Lawrence raised when Moonstone first analysed the draft Bill in 2024 remain.
Lawrence believes the Bill addresses only part of the broader challenge facing the funeral insurance market.
“The bigger issue is that funeral policies are not sold with a full needs analysis and are sold on the basis of limited advice,” he says.
He also points out that “the Fit and Proper requirements for funeral class policies are negligible, so clients are not getting any form of advice”.
As an example, Lawrence says, “A R500 000 risk policy may be much more beneficial to the insured and beneficiary than multiple funeral policies.”
Lawrence also says the Bill’s focus on policies issued by a single insurer leaves a broader issue unresolved.
He notes that insurers were looking at systems to evaluate all policies of a client, identify which should be cancelled, and possibly provide a single replacement policy.
“The problem with this is that it focuses on a single insurer and needs to look at the overall situation of multiple policies across all insurers.”
Nor does it change the distinction between Funeral Class and Risk Class business or the prudential limits that already apply to funeral policies.
In other words, the Bill is not designed to eliminate over-insurance altogether. It is designed to ensure that policyholders understand the consequences of buying multiple Funeral Class policies from the same insurer before they continue paying premiums.
One step closer
The Bill could be amended before it becomes law.
But its introduction into Parliament is a reminder that these proposals are no longer simply ideas under discussion.
If enacted, the Bill will require insurers to support the new disclosure requirements with systems capable of identifying overlapping Funeral Class policies and communicating the implications to affected policyholders and beneficiaries.
Lawrence believes there is also still an opportunity to improve the proposed approach.
“I think that insurers need to be lobbying for an appropriate intervention, rather than this one, which would not really have the desired outcome and will create unnecessary costs for the insurers.”
