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AFM: Funeral insurers do not act sufficiently in the interests of their clients when selling insurance

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The five largest funeral insurers can and should do more to focus on the interests of their clients when selling their insurance products. The AFM is of the opinion that funeral insurers have insufficient control of the risks inherent in the sale of funeral insurance. These are the main conclusions drawn from the investigation performed by the AFM into the distribution of funeral insurance products. The AFM did not investigate the product.

The AFM calls on funeral insurers to implement the recommendations and consult with each other concerning a recalibration of the revenue model. The AFM expects that the measures will mean that the focus will actually centre on the interests of the clients when distributing funeral insurance.

Findings

Funeral insurers are not very selective when determining the product's target group and with which intermediaries to cooperate. Commissions constitute undesirable incentives, the quality of intermediaries with whom the funeral insurers cooperate is not sufficiently monitored and cooperation takes place with authorised agents which adds little value when compared with the intermediary channel, while sales via this channel can increase the overall cost level of distribution.

The remuneration policy of some insurers does give reason for further investigation because it contains incentives that could entail a significant risk of negligent client handling. In addition, during telephone sales talks, the focus is not sufficiently on the funeral wishes and the consumer's situation, which are in particularly important with respect to funeral insurance with in-kind benefits. The majority of the analysed sales talks lack clear and correct provision of information. This means that it may not be clear to the consumer what the insurance entails, or what the consumer can and cannot pay with the insured sum.

Moreover, not all information required to issue suitable advice is obtained. The wishes as regards the funeral that were obtained are regularly unavailable to insurers, which means that they are not used in the adjustment of the insurance nor in the event of death. This is in particular undesirable as regards funeral insurance with in-kind benefits, because this insurance is intended to take away the burden of arranging the funeral from the surviving relatives. As the insurers make use of such terms advice and duty of care, the expectation is created that consumers receive carefully-considered advice, which is not lived up sufficiently to in practice.

Revenue model

The more generic image that is presented by the above findings is that the funeral insurers do not control the risk of product pushing adequately, as all investigated elements of the distribution are highly sales-driven. In view of the relative simplicity of this image, the AFM considers it probable that this generic image constitutes a manifestation of the revenue model that is at the basis of these activities. It is doubtful that the interests of clients can be the central focus in view of the current revenue model in the current market conditions (saturated market).

Investigation

During the investigation, the AFM assessed whether the manner in which funeral insurance is sold is cost effective, useful, safe and understandable. Control of the intermediary channel, commissions and remuneration policy were assessed in this context and telephone sales talks of several insurers were requested and examined. The five largest insurers were included in the investigation, which together represent sixty percent of sales (90% of insurers who are specialised in funeral insurance). The conclusions apply to the five investigated parties to different degrees and cannot be translated entirely to the practice of the rest of the market.

As regards remuneration policy, provision of information, suitable commissions and the duty to ascertain (part of the control of the intermediary channel), the AFM has a legal basis on the basis of which it can take enforcement measures if necessary. The AFM is still considering whether it will make use of this option.

The investigation into the distribution of funeral insurance presented questions and signs that relate to the pressure that is exercised to place the funeral with a specific funeral business and to characteristics of the product. This concerns questions such as 'how does a funeral insurance relate to saving or to a fixed term insurance?', 'how does the product work in the event of the surrender of the insurance?' and 'does the product always satisfy the expectations of the client?'. These subjects were not part of the investigation. The AFM does not exclude the possibility of further investigation into these subjects in the future.

The provisional conclusions of this investigation were already published in September in a letter from the Minister of Finance to the Lower House. This was related with the ongoing discussion concerning a possible prohibition on funeral insurance. The AFM is of the opinion that a prohibition on commissions can contribute to placing the focus on the interest of the client during the sale of funeral insurance products.



The AFM promotes fairness and transparency within financial markets. We are the independent supervisory authority for the savings, lending, investment and insurance markets. The AFM promotes the conscientious provision of financial services to consumers and supervises the honest and efficient operation of the capital markets. Our aim is to improve consumers’ and the business sector’s confidence in the financial markets, both in the Netherlands and abroad. In performing this task the AFM contributes to the prosperity and economic reputation of the Netherlands.

The AFM is committed to promoting fair and transparent financial markets.

As an independent market conduct authority, we contribute to a sustainable financial system and prosperity in the Netherlands.

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