PROD 7.2 Manufacture of funeral plans

1A manufacturer must maintain, operate and review a process for the approval of:

1. (1)

   a funeral plan product; and

2. (2)

   any significant adaptation of an existing funeral plan product,

in each case before it is marketed or distributed to customers.

1The product approval process in PROD 7.2.1R must be proportionate and appropriate to the nature of the funeral plan product.

1A manufacturer must have a product approval process that:

1. (1)

   ensures the design of a funeral plan product:

   1. (a)

      identifies how funeral arrangements will be provided;

   2. (b)

      delivers fair value;

   3. (c)

      takes into account the intended customers including their objectives, interests, needs and characteristics;

   4. (d)

      does not adversely affect customers; and

   5. (e)

      is driven by features that benefit the customer and not by a business model which relies on poor customer outcomes to be profitable;

2. (2)

   prevents or mitigates customer detriment; and

3. (3)

   supports a proper management of conflicts of interest.

1The product approval process must contain appropriate measures and procedures for:

1. (1)

   the design, distribution, monitoring and review of a funeral plan product;

2. (2)

   identifying whether the product is, or remains, appropriate to be marketed or distributed to customers; and

3. (3)

   taking corrective and/or mitigating action for funeral plan products where actual or potential customer detriment is identified.

1A manufacturer must set out the product approval process in a written document (“product oversight and governance policy”), which is made available to the relevant staff.

1A manufacturer must make and retain a record of any relevant actions taken in relation to the product approval process. The record must be made available to the FCA upon request.

1A manufacturer’s governing body must:

1. (1)

   endorse and be responsible for establishing, implementing and reviewing the product approval process; and

2. (2)

   verify internal compliance with that process on an ongoing basis.

1A manufacturer must ensure that any of its staff involved in the manufacture of a funeral plan product has the necessary skills, knowledge and expertise to properly carry out this role and, in particular, to understand the funeral plan product and the interests, objectives and characteristics of the customers belonging to the target market. (Also see SYSC 5.1.1R (competent employee rule)).

1Where a manufacturer uses a third party to undertake any part of the manufacture of the funeral plan product on its behalf, the manufacturer remains fully responsible for compliance with the product approval process.

1. (1)

   1A manufacturer must regularly review its product approval process to ensure that the process is still appropriate and up to date.

2. (2)

   Where the process is identified to no longer be appropriate, the manufacturer must:

   1. (a)

      amend the product approval process;

   2. (b)

      review any product approved since the approval process was last deemed to be appropriate to:

      1. (i)

         ensure these products were correctly approved for marketing and/or distribution; and

      2. (ii)

         take all necessary steps for the mitigation and remediation of any actual or potential harm to customers.

1. (1)

   1Where two or more firms collaborate to manufacture a funeral plan product, the firms must outline their mutual responsibilities in a signed written agreement.

2. (2)

   The written agreement in (1) must specify:

   1. (a)

      their respective roles in the product approval process; and

   2. (b)

      how they will collaborate to comply with the requirements in PROD 7.2 (Manufacture of funeral plans), including the procedures through which they will agree on the identification of the target market.

1A manufacturer must only approve a funeral plan product where it provides fair value to customers in the target market.

1. (1)

   1A manufacturer must:

   1. (a)

      be able to clearly demonstrate how any funeral plan product provides fair value; and

   2. (b)

      make and retain a record of the value assessment required by PROD 7.2.14R.

2. (2)

   Where a manufacturer is unable to both:

   1. (a)

      identify; and

   2. (b)

      clearly demonstrate,

   that the funeral plan product will provide fair value, the manufacturer must not:

   1. (c)

      market the funeral plan product; or

   2. (d)

      permit the funeral plan product to be distributed (whether directly or through another person),

   unless the manufacturer has ensured appropriate changes have been made so that fair value will be provided.

1In PROD 7 “value” means the relationship between the total price to the customer and the quality of the product(s) and/or services provided. The assessment of value must include consideration of at least the following:

1. (1)

   the nature of the product, including the benefits that will be provided, their quality, and any limitations (for example, in the scope of the funeral arrangements or other features);

2. (2)

   the type and quality of services provided to customers;

3. (3)

   the expected total price to be paid by the customer when buying the funeral plan product, and the elements that make up the total price. This will need to include consideration of at least the following:

   1. (a)

      the overall cost to the manufacturer of the funeral plan product of:

      1. (i)

         operating the product, including the costs of the trust or premiums paid towards an insurance policy to meet the requirements in FPCOB 3 (Structure provisions - arrangements underpinning a funeral plan contract); and

      2. (ii)

         the delivery of funeral benefits under it; and

   2. (b)

      the individual elements of the expected total price to be paid by the customer including, but not limited to:

      1. (i)

         the funeral plan product;

      2. (ii)

         the costs of the distribution arrangements, including the remuneration of any relevant person in the distribution arrangements, and including where a manufacturer delegates the final decision on setting the price to another person; and

4. (4)

   how the intended distribution arrangements support, and will not adversely affect, the intended value of the product.

1A manufacturer must not rely on individual customers to consider whether they are making fair value purchases in place of any part of the manufacturer’s own assessment.

1When assessing whether a product should be approved for the purposes of PROD 7.2.1R, a manufacturer must use the full range of data and information available to it including, but not limited to:

1. (1)

   information available to the manufacturer internally including:

   1. (a)

      customer research;

   2. (b)

      the performance of the funeral plan product or other funeral plan products of the manufacturer, including for example:

      1. (i)

         how the estimated costs of funerals compare to actual costs;

      2. (ii)

         number of customers cancelling the funeral plan contracts;

      3. (iii)

         number of missed instalment plan payments by the customer; and

      4. (iv)

         number of funeral plan contracts expected to be claimed but have not been redeemed;

   3. (c)

      complaints data (including root cause analysis and handling times), both expected for the product itself and/or any actual information from a comparable product;

2. (2)

   public information or information obtainable by the manufacturer from external sources, including analysis of similar funeral plan products available from other firms; and

3. (3)

   information available to the manufacturer specifically from persons in the distribution arrangements or external funeral provider, including:

   1. (a)

      any remuneration and its impact on the value of the product;

   2. (b)

      levels or quality of service provided by any person in the distribution arrangements;

   3. (c)

      any results of monitoring and oversight of the processes of any persons in the distribution arrangement (for example, call monitoring or file checks), including in relation to other products that person distributes; and

   4. (d)

      the wholesale and retail prices of a funeral not paid for using a funeral plan contract (whether paid for in advance or after the death of a person).

1A manufacturer must only approve a funeral plan product where it has established adequate processes and procedures to ensure:

1. (1)

   any funeral plan contracts entered into using that product will have the necessary and robust trust or insurance arrangements required to comply with FPCOB 3 (Structure provisions – arrangements underpinning a funeral plan contract); and

2. (2)

   at a product level, there is sufficient oversight and management of those trust or insurance arrangements to mitigate the risk of customer harm.

1A manufacturer must ensure that for each funeral plan product the product approval process:

1. (1)

   specifies an identified target market;

2. (2)

   assesses all relevant risks to the identified target market;

3. (3)

   identifies that a funeral plan product offers fair value to the specified target market, taking into account in particular their needs, objectives, interests and characteristics;

4. (4)

   permits only the approval of funeral plan products that are compatible with the needs, characteristics and objectives of the customers belonging to the target market;

5. (5)

   verifies that the intended distribution strategy is consistent with the identified target market; and

6. (6)

   requires reasonable steps are taken to ensure that the funeral plan product is distributed to the identified target market.

1A manufacturer must identify the target market at a sufficiently granular level, taking into account the characteristics, risk profile, complexity and nature of the funeral plan product.

1A manufacturer must identify groups of customers for whose needs, characteristics and objectives the funeral plan product is generally not compatible.

1When assessing whether a funeral plan product is compatible with a target market, a manufacturer must take into account:

1. (1)

   the level of information available to the customers belonging to that target market and their financial literacy; and

2. (2)

   vulnerable customers.

1. (1)

   1A manufacturer must test a funeral plan product appropriately, including scenario analyses, in a qualitative manner and quantitative manner.

2. (2)

   The product testing in (1) must assess whether the funeral plan product over its lifetime meets the identified needs, objectives and characteristics of the target market.

3. (3)

   The requirement in (1) must be carried out:

   1. (a)

      before approving the product for marketing or distribution;

   2. (b)

      when the product is being significantly adapted; and

   3. (c)

      where the target market has significantly changed.

1A manufacturer must not bring a funeral plan product to the market if the results of the product testing show that the product does not provide fair value including where it would not meet the identified needs, objectives and characteristics of the target market.

1A manufacturer must carefully select distribution arrangements, including specific distribution channels that are appropriate for the target market, taking into account the particular characteristics of the relevant funeral plan product.

1. (1)

   1When selecting any distribution arrangements, including any particular distribution channel, a manufacturer must be able to demonstrate clearly that these arrangements:

   1. (a)

      result in fair value to the customer;

   2. (b)

      are consistent with the requirements in FPCOB 6.4 (charging for funeral plan distribution); and

   3. (c)

      prevent or mitigate the risk of customer detriment arising from the distribution of the product, for example by verifying that any proposed distributor has the necessary knowledge, expertise and competence; and

   4. (d)

      do not pose a significant risk of a distribution channel failing to meet the requirements in FPCOB.

2. (2)

   A manufacturer must not use a distribution channel unless it is able to demonstrate the requirements in (1) are met.

1Whenever making a change to the distribution arrangements, including adding a further distribution channel, a manufacturer must:

1. (1)

   obtain all necessary information from the distributor or any other person who will be involved with the distribution arrangement, including that set out in PROD 7.2.35R; and

2. (2)

   identify whether the proposed change to the distribution arrangements is consistent with the fair value requirement in PROD 7.2.14R.

1. (1)

   1A manufacturer must make available to a distributor all appropriate information on the:

   1. (a)

      funeral plan product, including to enable the distributor to understand the intended value established by the manufacturer;

   2. (b)

      product approval process;

   3. (c)

      identified target market of the funeral plan product, including any type of customer for whom the funeral plan product is unlikely to provide fair value; and

   4. (d)

      suggested distribution strategy.

2. (2)

   The information in (1) must:

   1. (a)

      include information on the main features and characteristics of the funeral plan products, their risks and costs, including implicit costs, and any circumstances which might cause a conflict of interest to the detriment of the customer;

   2. (b)

      be clear, complete and up to date.

1. (1)

   1The information a manufacturer has to make available to any distributor under PROD 7.2.33R(1) must be of an adequate standard to enable distributors to:

   1. (a)

      understand the funeral plan products;

   2. (b)

      comprehend the identified target market for the funeral plan products;

   3. (c)

      identify any customers for whom the funeral plan products are not compatible with their needs, characteristics and objectives; and

   4. (d)

      carry out distribution activities for the relevant funeral plans in accordance with the best interests of their customers as prescribed in FPCOB 2.1.2R.

2. (2)

   A manufacturer is not required to disclose specific information objectively considered to be commercially sensitive if the information it does make available would still allow distributors to meet PROD 7.2.34R(1) and 2PROD 7.2.35R(1)(a) and (b).

1A manufacturer must obtain from any person in the distribution arrangements all necessary and relevant information to enable it to identify the remuneration associated with the distribution arrangements to allow it to assess the ongoing value of the product, including at least:

1. (1)

   the type and amount of remuneration of each person in the distribution arrangement where this is part of the funeral plan contract price or otherwise paid directly by the customer, including in relation to additional products;

2. (2)

   an explanation of the services provided by each person in the distribution arrangements; and

3. (3)

   confirmation from any firm in the distribution arrangements that any remuneration is consistent with their regulatory obligations, including SYSC 19F.3 (Funeral plan remuneration incentives).

1A manufacturer must regularly review the funeral plan products it offers or markets taking into account any event that could materially affect the potential risk to the identified target market, the main features or the guarantees of the funeral plan product. In doing so, the manufacturer must assess at least the following:

1. (1)

   whether the funeral plan product remains consistent with:

   1. (a)

      the identified target market, including their interests, needs, characteristics and objectives;

   2. (b)

      the fair value assessment required under PROD 7.2.14R; and

2. (2)

   whether the intended distribution strategy remains appropriate, including whether those products are being distributed to the target market or are reaching customers outside the target market.

1A manufacturer must ensure that the review process:

1. (1)

   has the necessary measures to be able to identify if the funeral plan product is not providing fair value; and

2. (2)

   provides that appropriate actions be taken:

   1. (a)

      for the mitigation and any potential remediation of the harm to existing customers; and

   2. (b)

      to prevent harm to new customers.

1A manufacturer must undertake the regular review:

1. (1)

   every 12 months; or

2. (2)

   more frequently where the potential risk associated with the funeral plan product makes it appropriate to do so.

1When determining the appropriate interval for review of a funeral plan product, a manufacturer must take into account:

1. (1)

   the nature of the customer base, including whether there are significant numbers of vulnerable customers;

2. (2)

   any specific indicators seen in the manufacturer’s assessment of the product’s value to the customer;

3. (3)

   the nature and type of distribution arrangements being used;

4. (4)

   any indicators of customer harm potentially emerging from the performance of the product (for example, through redemptions of funeral plan contracts, missed instalment plan payments by the customer, and/or the number of funeral plan contracts expected to be redeemed but have not been redeemed and complaints data); and

5. (5)

   any relevant external factors, such as changes to the applicable legal rules, technological developments, or changes to the market situation.

1. (1)

   1A manufacturer must identify during the lifetime of a funeral plan product any circumstances related to the funeral plan product that may adversely affect a customer of that product.

2. (2)

   Where a manufacturer identifies an event that may adversely affect a customer of the product, the manufacturer must:

   1. (a)

      take appropriate action to mitigate the situation and prevent further occurrences of the detrimental event; and

   2. (b)

      promptly inform concerned distributors and customers about the remedial action taken.

1. (1)

   1A manufacturer must take appropriate steps to monitor:

   1. (a)

      that a funeral plan product distributor acts in accordance with the objectives of the manufacturer’s product approval process; and

   2. (b)

      any impact which the distribution arrangements are having on the value including whether the distribution channels remain appropriate.

2. (2)

   A manufacturer must verify on a regular basis whether the funeral plans products are distributed on the identified target market.

3. (3)

   The monitoring activities must be reasonable, taking into consideration the characteristics and the legal framework of the respective distribution channels.

1A manufacturer must:

1. (1)

   ensure that it has sufficient, good quality management information; and

2. (2)

   use the full range of data and information available to it (whether it holds this information already, the information is publicly available, or it is able to obtain it from another person),

to enable it to properly understand and monitor the funeral plan product.

1For the purposes of showing that the requirement in PROD 7.2.1R is met, where a manufacturer makes a change to a funeral plan product, it must make and retain a record of:

1. (1)

   the assessment of whether that change would amount to a significant adaptation of the funeral plan product; and

2. (2)

   where the assessment in (1) is that the change would not be a significant adaptation, the reasons for that decision.

1Manufacturers considering that the distribution of their funeral plan products is not in accordance with the objectives of their product approval process must take appropriate remedial action including but not limited to:

1. (1)

   amending the distribution arrangements, including ceasing to use certain distributors or distribution channels;

2. (2)

   amending remuneration structures;

3. (3)

   withdrawing the funeral plan product from continued marketing or distribution; or

4. (4)

   paying redress as appropriate.