Compliance Economic Review
Pursuant to section 120.745(5), Florida Statutes
Rule 69K-8.003, Florida Administrative Code
Cancellation of Preneed Contracts; Reasonable Time Defined
Department of Financial Services
Board of Funeral, Cemetery, and Consumer Services
March 30, 2012
JUSTIFICATION FOR THE RULE
Rule 69K-8.003 implements section 497.459(2)(b)1., Florida Statutes, in establishing a
uniform standard for how quickly a preneed seller must deliver a casket or outer burial
vault after request for same under a preneed contract previously entered into. Typically,
the request for delivery of the casket or outer burial vault is made at the time of death of
the person whose remains will be placed in the casket and outer burial vault.
An outer burial vault is typically a concrete box, with a removal lid, which is placed in the
grave, and the casket is then placed in the outer burial vault. Outer burial vaults are
required in most licensed cemeteries. The outer burial vault prevents the formation of a
depression in the ground as the casket deteriorates over time and the earth settles.
Such depressions are deemed unsightly by most cemetery customers and cemeteries.
The rule is applicable to preneed licensees. There are approximately 340 preneed
licensees. The rule relates only to caskets and outer burial vaults sold on a preneed
basis. "Preneed sales" refers to the purchase by a person, before their death (often
years before their death), of services and merchandise to be used at the time of their
death, for the final disposition of the person's bodily remains. For example, this might
include funeral director services, embalming, viewing of remains, casket, outer burial
vault, burial service, headstone or other grave marker, or alternatively, cremation
service.
At time of death, it is essential that the casket and outer burial vault be delivered
quickly. For emotional reasons, the family of the deceased will typically not want the
funeral to be delayed to wait for the delivery of the casket or outer burial vault.
Delay in delivery of the casket and/or outer burial vault can also result in significant
adverse financial impact to the family. This can occur where the family, faced with
apparent delay in delivery of the casket or outer burial vault, purchases another casket
or outer burial vault, in order to facilitate a timely funeral and burial. In such instances,
the family would often not, absent the standard in this rule, have a right to a refund of
the price paid for the original casket or outer burial vault. Instead, the preneed seller
may simply tender delivery of the original casket or outer burial vault. The rule
addresses this situation by providing a standard of 24 hours for delivery. If the preneed
seller does not deliver the original casket and/or outer burial vault within 24 hours of
request, the family can buy from another source and get a cash refund of amounts paid
for the original casket and outer burial vault.
The rule has been in effect since approximately 1994. The rule has been approved by
the regulatory Board under chapter 497, Florida Statutes. A majority of the members of
the Board are themselves regulated members of the deathcare industry. The rule has
not been a source of controversy within the industry that is subject to the rule.
2
STATEMENT OF ESTIMATED REGULATORY COSTS
ECONOMIC ANALYSIS
The cost of the rule to affected businesses occurs primarily in the context of those
occasions when the preneed seller fails to deliver the casket and vault within the
required 24 hours. In those situations, the rule has the effect of requiring a refund of the
full amount paid to the preneed company for the casket and vault. The cost to the
preneed seller is thus their gross profit on the casket and vault (the difference between
the wholesale price the preneed seller pays for the casket and vault and the retail price
the customer paid).
The Division estimates that approximately 85,000 preneed contracts are called on for
fulfillment in a typical year in Florida. The Division estimates that half of those, or on
average 42,500 contracts, involve the sale of a casket and vault. The Division
estimates that on average one quarter of a percent (.0025) (106) of those 42,500
preneed contracts are the subject of a late delivery of the casket and vault. The
Division estimates the typical casket in these contracts was sold at retail for $2,500, and
cost to the preneed seller averaged $1,800. The Division estimates that the average
vault in such contracts was sold for a retail price of $1,500, with a cost to the preneed
seller averaging $1,000. Where the preneed seller must refund the price paid, the cost
to the preneed seller is the difference between the wholesale price the preneed seller
would pay and the retail price the customer paid. Based on the estimated average
figures given herein, the cost of the rule is $1,200 ($500 + $700). The $1,200 cost per
late delivery, times 106 late deliveries per year, results in costs of $127,200 per year.
When multiplied by five years, it indicates a five-year cost of $636,000.
Notwithstanding the above analysis, it is in the Division's opinion that it is not
economically justifiable to attribute the entire $636,000 cost to the rule. In the event of
late delivery, if the customer sued the preneed seller, the Division believes most courts
would rule in the customer's behalf, because it is inherently unreasonable for the
preneed seller to deliver the casket and vault too late to be used for a funeral service to
be held within normal time frames. Stated differently, in such cases the late delivery
prevents the customer from having the benefit of what they bargained for, as regards
the casket and outer burial vault. The effect of the rule is essentially to save the
consumer from the trouble and expense of suing over such an emotionally troubling
subject matter.
Is this rule likely to have an adverse impact on economic growth, private sector job
creation or employment, or private sector investment in excess of $1 million in the
aggregate within five years after the implementation of the rule?
The Division answers this question in the negative. The number of preneed contracts
sold in Florida has been rising in recent years:
2009 92,247
2010 95,986
3
2011 100,889
The number of preneed sales agents licensed in 2011 (821) was 8% higher than were
licensed in 2010 (760).
The growth in the number of preneed contracts sold, and the number of preneed sales
agents licensed, indicates a healthy preneed industry in Florida, especially considering
the severe recession over the last three years.
Is the rule likely to have an adverse impact on business competitiveness, including the
ability of persons doing business in the state to compete with persons doing business in
other states or domestic markets, productivity, or innovation in excess of $1 million in
the aggregate within five years after the implementation of the rule?
The Division answers this question in the negative. Any persons coming into Florida to
sell preneed must comply with Florida's preneed licensing laws, including licensing of
preneed sales agents. Conversely, if a Florida based seller of preneed contracts wants
to sell preneed contracts in another state, they must comply with the law in that other
state, not Florida law (if the other state does not require use of licensed preneed sales
agents, the Florida based seller does not need to use a licensed preneed sales agent in
the other state).
Market forces tend to make preneed sales a "local" business. Competition is typically
limited to establishments and cemeteries in the buyer's county of residence and
contiguous counties. It is simply in the nature of things that a person arranging their
funeral and burial on a preneed basis will usually want to use a fairly near-by funeral
home and cemetery. The funeral home and cemetery need to be fairly convenient to
their loved ones who will be involved in the funeral service and cemetery interment.
The idea of having their remains shipped long distances to some remote and unknown
funeral establishment and cemetery, simply for a price advantage, is not typically
attractive to buyers of preneed contracts. If the person already has a spouse, child,
parent, etc., buried in a particular cemetery, that will usually drive the choice of the
cemetery. If a person has had a good experience in a particular funeral home regarding
the funeral services of another person, particularly a family member, that will typically
have a very strong influence on the purchase of a preneed contract. Although
cremation tends to be somewhat less of a "local" business, even regarding preneed
contracts for cremation there is typically significant consumer resistance to having their
remains shipped long distances to unknown facilities for cremation. Thus, generally
speaking, preneed sales tend to be a "local" business.
Sales of preneed contracts to Florida residents over the internet by sellers outside
Florida have not to date been a significant component of preneed sales in Florida. Any
increase of such internet sales by out-of-state sellers is expected to be slow, because
the preneed sales tend to be a "local" business (see discussion above).
4
Is the rule likely to increase regulatory costs, including any transactional costs, in
excess of $1 million in the aggregate within five years after the implementation of the
rule?
The Division answers this question in the negative. The transactional costs identified in
this Compliance Economic Review have been in place for years, so no additional cost
will result. It is estimated that the continued enforcement of the rule will result in
estimated aggregate regulatory costs over five years of $636,000. See economic
analysis, supra. Because of the uncertainty in estimating the numbers of both yearly
non-compliance and percent of small businesses involved in non-compliance, this
compliance economic review is being completed and published.
NUMBER AND TYPES OF INDIVIDUALS AFFECTED
There are approximately 340 businesses affected by the rule. These businesses sell
preneed contracts.
The 340 affected businesses are also either a licensed cemetery, a funeral home, or a
direct disposal establishment. In size, the 340 entities range from a few very large
multi-state firms, to small funeral homes operated by a family with only two to four full
time staff. The average net worth of the preneed licensees was approximately $3.342
million.
COST TO THE AGENCY, AND TO ANY OTHER STATE AND LOCAL GOVERNMENT
ENTITIES, OF IMPLEMENTING AND ENFORCING THE PROPOSED RULE, AND ANY
ANTICIPATED EFFECT ON STATE OR LOCAL REVENUES
The great majority of the affected businesses comply with the rule without any
compulsion required. The Division estimates that approximately once every five years
the Division will encounter a case where the affected business will not comply with the
rule, and disciplinary action by the Division and the regulatory board is required. The
costs to the Division of such a case are estimated at $1,500 in Division staff time, and
$2,500 in agency legal staff time, for a total cost of $4,000, which on an annualized
basis is $800.
There are no costs to other state or local government agencies related to the rule.
The rule has no impact on state or local revenue.
TRANSACTIONAL COSTS
The Division estimates that approximately 85,000 preneed contracts are called on for
fulfillment in a typical year in Florida. The Division estimates that half of those, or on
average 42,500 contracts, involve the sale of a casket and vault. The Division
estimates that on average one quarter of a percent (.0025) (106) of those 42,500
5
preneed contracts are the subject of a late delivery of the casket and vault. The
Division estimates the typical casket in these contracts was sold at retail for $2,500, and
cost to the preneed seller averaged $1,800. The Division estimates that the average
vault in such contracts was sold for a retail price of $1,500, with a cost to the preneed
seller averaging $1,000. Where the preneed seller must refund the price paid, the cost
to the preneed seller is the difference between the wholesale price the preneed seller
would pay and the retail price the customer paid. Based on the estimated average
figures given herein, the cost of the rule per late delivery is $1,200 ($500 + $700). The
$1,200 cost per late delivery, times 106 late deliveries per year, results in costs of
$127,200 per year. When multiplied by five years, it indicates a five-year cost of
$636,000.
ANALYSIS OF THE IMPACT ON SMALL BUSINESSES
The Division estimates that 304 of the approximately 340 (89%) affected businesses are
small businesses within the definition at section 288.703(6), Florida Statutes. The
average net worth of those 304 affected businesses was approximately $438,450 in
2010. The majority of the affected small businesses were funeral homes.
Sales and fulfillments of preneed contracts are not distributed ratably among the
approximately 340 preneed sellers. The 20 largest preneed sellers sell and fulfill
approximately 74% of all preneed contracts sold, and the remaining 320 preneed sellers
sell and fulfill approximately 26% of the preneed contracts sold. The Division
estimates that the small businesses affected by the rule account for approximately 28
(106 x .26) of the preneed contracts that are the subject of late deliveries. At the
estimated cost to the affected business of $1, 200 per late delivery, the estimated total
aggregate cost to all affected small businesses is $33,600 per year (28 x 1200), or $111
per affected small business (33,600/304).
ANY ADDITIONAL INFORMATION THAT THE AGENCY DETERMINES MAY BE USEFUL
The agency has no other additional information that the agency has determined may be
useful.
REGULATORY ALTERNATIVES SUBMITTED
No regulatory alternatives were submitted.
EXPLANATION OF THE METHODOLOGY USED TO CONDUCT THE ANALYSIS
The Division maintains a database from which it has extracted reliable data as to
number of licenses issued per year, date of birth of applicant, and other pertinent data.
The Division has staff that have extensive experience in deathcare industry regulation
6
and, to a significant extent, the economics and empirical characteristics of deathcare
industry businesses, particularly deathcare industry licensees. The Division has
informally queried deathcare industry members for their input on issues or questions
pertinent herein. The Division has diligently collated and applied all of said data to
produce the good faith estimates of regulatory costs presented herein.
7