The South Korean government is implementing stringent reforms aimed at increasing transparency in the management of prepaid funds within the funeral industry. As the sector reaches a milestone of 10 trillion won in prepaid funds and 10 million subscribers, it finds itself at a crossroads between the need for enhanced transparency and the reality of declining profitability.
According to industry sources on May 10, six legislative proposals are currently pending in the National Assembly, focusing on controlling the management of prepaid funds by funeral companies and restricting transactions with major shareholders and related parties. This comes amid growing consumer distrust in the prepaid funeral sector, fostering a consensus on the need for stronger protections for prepaid funds.
The core objective of these proposals is to eliminate speculative management of prepaid funds, which are a key asset for funeral businesses. Key provisions include the formalization of principles for managing prepaid funds, prohibiting debt guarantees and collateral provision, and banning loans for equity purchases. Additionally, the proposals aim to enhance oversight of corporate governance by limiting credit extensions to major shareholders, prohibiting unfair internal transactions, and expanding obligations for board resolutions and disclosures.
The Fair Trade Commission (FTC) has also announced plans to amend the Enforcement Decree of the Installment Transactions Act and revise guidelines for imposing fines on violators of the Act, with public notices issued between March and April of this year.
Notably, there is a shift in the supervisory framework. The existing FTC-centric oversight system will now incorporate the expertise of financial authorities. According to a joint proposal by the FTC and the Financial Services Commission, the FTC will be able to request support from the Financial Services Commission when necessary, and the Financial Supervisory Service will have a legal basis to directly participate in investigations and inspections of funeral companies.
While the funeral industry acknowledges the importance of consumer protection, there are concerns that these regulations could threaten business sustainability. The industry relies on managing prepaid funds received from consumers to generate profits. However, increased regulatory restrictions on fund management could significantly reduce operational flexibility.
An industry representative stated, "As the number of subscribers grows, the unique accounting structure leads to increased liabilities on the books. If restrictions are placed on the management of prepaid funds, the burden of managing profitability will increase. Limitations on inter-company fund transactions and stricter capital soundness standards could weaken corporate competitiveness in the long term."
As South Korea enters an aging society, the scale of the prepaid funeral industry is expanding. According to the FTC, as of March this year, the total amount of prepaid funds in the domestic funeral market reached 10.3348 trillion won, more than tripling from 3.520 trillion won recorded in 2015.
Woojung Free Life, the industry leader, reported a cumulative prepaid fund of 2.9118 trillion won at the end of last year and became the first in the sector to surpass 3 trillion won in April this year. Boram Funeral and Kyowon Life are fiercely competing for the second position, with prepaid fund amounts of 1.657 trillion won and 1.6462 trillion won, respectively, as of last year.
* This article has been translated by AI.
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