The question isn’t whether preneed needs to change, but how to change it.
The November 2nd edition of the Funeral Insider highlights a new industry survey by Citrin Cooperman, a highly regarded accounting firm. The newsletter includes a section on preneed, and experts’ take on the survey. Their consensus is that preneed is broken. (Tell us something we didn’t already know!) But for the sake of giving sound bite advice, the experts compromise valid advice by resorting to generalities and false alarms.
The Citrin Cooperman survey is available for $295, a bit too rich for curiosity purposes. The accuracy of any survey is dependent upon sampling an appropriate representation of the population (in this case, the death care industry). What is lost by the FI critique of the guaranteed contract, is that applicable state law is the single greatest determinant of the structure of the preneed transaction.
Most of the country’s laws were written in response to the guaranteed contract, and do not contemplate any other form of preneed. If applicable law does not specifically authorize non-guaranteed preneed, most funeral directors will be reluctant to offer it. The availability of an alternative to the guaranteed contract is state specific, and therefore a survey limited to four states is of limited use to the remaining 92% of the nation.
With regard to the four survey states, it is worth noting that 8% of the respondents stopped offering the guaranteed contract during the past year. But does that mean 67% of the respondents are following the “wrong” strategy because they continue to offer a guarantee? Beyond state law, consumer expectations and/or competition dictate that a funeral home offer preneed, and then what form of preneed to offer. Most funeral homes are forced to respond to an evolving market, and the preneed resources available. It’s a business decision with many unique factors.
As the FI experts recommend, funeral homes need to pay more attention to their preneed program. But preneed isn’t an addictive drug, it is an option that consumers have come to expect. The problem with preneed is how the guarantee has been used to define the consumer’s expectations. But as funeral homes begin to limit their use of the guarantee and realign consumer’s expectations, preneed will become more complicated (and require more of the funeral director’s attention).
Consumers will still want to address the future costs of the funeral. If they are allowed to fund, but not purchase, how is the transaction to be regulated? Contrary to what one FI expert suggests, regulation of preneed has been based on a transaction involving the purchase of goods and services. Accordingly, many preneed sellers deem the payments as theirs upon receipt, even though those payments may be sitting in a trust, a bank account, or an insurance policy. This view of the transaction is supported by a series of position letters issued by the Securities Exchange Commission’ similar to the one issued to an Iowa preneed seller. The SEC wanted no part of regulating preneed.
As the industry moves to non-guaranteed preneed, or even partially guaranteed preneed, there will be a debate over who owns the trust funds, bank account or insurance policy: the consumer or the preneed seller. The answers will be more complicated, requiring more from our laws, regulators and the documents.
Too complicated for sound bite advice.