The UK's consumer markets watchdog and Treasury have announced separate reviews of competition and price transparency in the £ 2 bnfuneralsmarket.
The Competition and Markets Authority said it would investigate whether the information provided by funeral directors on prices and services is clear enough. It will also assess how and why prices have changed.
The Treasury is to examine regulation in the pre-paid funerals market, to “stop grieving families from being ripped off”. The government will consult on tougher regulation and propose bringing the market under the supervision of the Financial Conduct Authority.
“Affordability and debt can... be a real concern to many people, with those on the lowest incomes potentially spending up to one-third of their annual income on a funeral,” said the CMA. Shares in Dignity, the UK's only listed funeral provider, fell 14per cent in early trading yesterday. They were still 13.6 per cent down when the market closed.
The cost of cremations will also be scrutinised. About 22 per cent of Dignity's revenue and 40 per cent of its operating profit came from cremations in2017.
Any regulation of cremation pricing could affect Dignity, said Calum Battersby, an analyst at Berenberg bank.
“As the crematoria business is essentially a series of local monopolies, this has been the area of the business where competition is lowest and Dignity has been able to continue to put through pricing growth in recent periods. As a result, an oversized proportion of the value in Dignity's shares come from the crematoria business, and the value of this could be significantly impacted by any increased regulation.”
Mike McCollum, chief executive of Dignity, said the company had made “considerable investment into our business to ensure that customers get the quality of service they expect and deserve. We welcome the prospect of more regulation in the sector.”
Most of the pre-paid funerals market is voluntarily regulated by the Funeral Planning Authority, which does not have the power to prevent providers from trading in cases of malpractice.
Pre-paid funerals involve customers paying upfront for funeral services they may not require for some time.
Regulation of the pre-paid market is likely to benefit big providers such as Dignity and the Co-operative Group's funerals business, because they would be better placed to prove they will be able to fulfil future contracts, Mr Battersby said.