The government has been urged to create an emergency fund to help victims of failed funeral homes after a recent collapse of a business left 46,000 people with losses.
In March, Safe Hands plunged into administration, in a blow to customers who had used it to cover their funeral expenses.
Campaigners have warned that other companies could also fail, leaving customers in “funeral poverty”.
FRP, the restructuring firm appointed to handle Safe Hands’ administration, says the company does not have enough cash in its coffers to meet its obligations.
For the next six months, Dignity, one of the largest undertakers in the UK, has agreed to offer funerals for Safe Hands customers on a “not-for-profit” basis and will offer plans to surviving customers.
However, many will lose money as a result of the collapse.
The failure of Safe Hands comes at a critical time for the funeral industry, which will face tough new regulations effective July 29, when it falls under the purview of the Financial Conduct Authority (FCA).
One of the new consumer protections is a ban on certain sales tactics, such as cold calling. Customers are also eligible for the Financial Services Compensation Scheme, ensuring their funds are protected if their plan provider fails.
In order to continue operating, funeral directors must pass the FCA’s rigorous testing to gain approval. There are fears the change will expose weak players in an industry that has been criticized for aggressive selling tactics and poor value.
Campaigners have launched a petition calling on the government to create a fund for victims of failed businesses. They fear that more people will find themselves in the same situation as Safe Hands customers and call on the government to “protect the victims from funeral poverty”. If the petition collects 10,000 signatures, the government will have to respond.
The FCA website shows the status of each company’s authorization application. Of the 66 funeral insurance companies listed, 12 have declined or withdrawn applications, another 15 are planning to transfer their plans to another provider, and seven have not applied at all.
An FCA spokesperson says people who have purchased a prepaid funeral plan from Safe Hands will be “understandably concerned.”
“The government has changed the law to bring prepaid funeral plans under our regulations from the end of July 2022. Until then, companies like Safe Hands are unregulated and we have limited powers,” they say.
“We are currently reviewing applications from companies to ensure they meet the standards needed to be regulated and we have put in place rules for them to follow from July 29, including consumer protections if companies fail.”
The collapse of Safe Hands has left a trail of fear, with an FRP-established call center inundated with 15,000 calls from concerned plan holders.
Among them are Susan and John Ogilvie, an Essex couple who spent £8,000 on two funeral plans. Susan says they used their savings to buy the plans, so “nobody has to worry,” but they are now in danger of losing most of their money.
“My sister’s husband died a few years ago and she didn’t have the money,” Susan says. “The undertaker wanted £2,000 upfront and she didn’t have it. Fortunately we are not in that position, but you never know. I didn’t want someone to go to a funeral home and say, ‘I don’t have the money for it.’”
FRP is still figuring out what happened to Safe Hands’ money, but the recent update painted a grim picture.
The private equity-backed company used two fund managers to invest clients’ money, FRP says, one of which has gone into liquidation. It has approximately £4 million in cash and shares in UK listed companies, up for sale. However, a significant portion has gone into risky investments, often in offshore jurisdictions.
Dignity will ask customers who choose to transfer their subscription to make additional contributions. It says it will price these new plans as “cheaply as possible”, with customers potentially spreading the cost over five years.
“What happened at Safe Hands is outrageous and shows why the discipline and safety of regulations are necessary and overdue,” said Mike Hilliar, director of funeral planning at Dignity. “We have been working with administrators to ensure that families who suffer a death do not go without a funeral; however, this is only a short term solution. In the longer term, we are working on a solution where customers with a funeral plan can choose to switch to a funeral plan from Dignity.”
James Daley, the chief executive of Fairer Finance, says it would be good if the Treasury compensated customers paid out of their own pockets due to the new regulations in the sector.
“I’ve always felt that the Treasury is in trouble for this because we knew the regulation would crystallize losses for some people who had plans once these rules came into effect and bad players left the market,” he said. daley. say.
“Safe Hands would always be the largest company likely to go bankrupt, but there are still many small and medium-sized companies whose status is unclear.”
A spokesman for HM Treasury says it is regulating consumers against bad industry practices by bringing prepaid funeral plans into the regulation.
They add: “We recently introduced secondary legislation to make it easier for regulated funeral insurance providers to take on customers from providers that are exiting the market. This will protect consumers – particularly during the regulatory transition – by ensuring that more funeral plan holders benefit from continued plan coverage.”