CMA publishes its final report on funerals and crematoria market investigation

Following an in-depth market investigation into the funeral services sector, the Competition and Markets Authority ("CMA") published its final report in December 2020. The report identifies a number of competition issues and confirms a package of "sunlight remedies", including obligations on funeral directors and crematoria operators to disclose prices to customers, and a prohibition on solicitation.

Background

The CMA launched a market study in relation to the supply of funerals in the UK in June 2018 and, in March 2019, made a market investigation reference (under s. 131 of the Enterprise Act 2002) in relation to the supply of services by funeral directors at the point of need and the supply of crematoria services in the UK. Following a six-month extension to the market investigation due to the COVID-19 pandemic, the CMA published its provisional findings decision for consultation in August 2020, followed by its final report, confirming those findings, on 18 December 2020.

Competition concerns identified

The central concern arising from the market study was that consumers pay higher prices for funerals because they are not in a position to make the best choices and are vulnerable to exploitation.

The funeral director industry is fragmented consisting of three large players and a long tail of small firms, many of which have only one branch. Contrary to the belief of many customers, the activities of funeral directors are not regulated in England, Wales and Northern Ireland (though a regime is being introduced in Scotland). In addition, there are 303 crematoria in the UK operated by 184 separate entities, primarily local authorities.

In the market investigation, the CMA found that most people are unlikely to exercise good commercial judgment when purchasing a funeral as they would in relation to other high-cost purchases. Grief and bereavement naturally have an impact on decision-making, and consumers do not generally compare offers between different funeral directors or crematoria. They also tend to make choices of provider based on proximity or familiarity rather than price.

The CMA found that funeral directors play a very important role in shaping customer decision-making, but noted concerns about the lack of pricing information available online and the reluctance of funeral directors to provide prices in a complete and transparent way over the phone. There were also concerns about the way in which funeral directors may seek to gain additional customers through partnerships with care providers, and about the lack of competitive incentives over back-of-house quality (how the deceased is cared for by the funeral director), a significant feature of the service which is unobservable by customers. 

The CMA found that crematoria operators do not generally have geographically close rivals, as barriers to entry are high. Whilst customers do consider overall quality of the cremation service, they are unlikely to compare quality between crematoria, as proximity is equally as important. 

Ultimately, the CMA concluded that there were a number of features of the funeral directors and crematoria markets which restrict or distort competition, and that high prices in the supply of funeral director and crematoria services are likely to reflect the exercise of market power arising from limited competitive constraints. 

Remedies

The CMA's "sunlight" remedies seek to ensure that the pricing and commercial activities of funeral directors and crematoria operators, as well as the quality of service provided by funeral directors, are exposed to greater public scrutiny, including:

• requirements that funeral directors and crematoria improve the transparency of price and commercial information provided to customers, and a prohibition on funeral directors from entering into certain customer referral and solicitation arrangements;
• a recommendation to UK Government to establish an inspection and registration regime to monitor the quality of funeral director services in England, Wales and Northern Ireland;
• recommendations that the CMA actively monitors the funerals sector, publishes an annual report on consumer outcomes and considers consulting on a new market investigation reference once the impact of COVID-19, which has materially changed the circumstances in which funerals can be conducted, is better understood; and
• requirements that some larger funeral directors and all crematoria operators provide the CMA with information on volume and revenues to assist with monitoring the sector.

These remedies must be implemented by 17 June 2021.

The CMA noted that as a result of the pandemic, it has not been able to design the remedy package that it might otherwise have wished to implement, including a price control. However, given its plan for ongoing monitoring of the sector, the CMA may yet take further action once the dust of the pandemic has eventually settled.

With thanks to Helen Chamberlain of Ashurst for her contribution.