Compliance Economic Review
Pursuant to section 120.745(5), Florida Statutes
Rule 69K-5.0024, Florida Administrative Code
Remittances to the Regulatory Trust Fund
Department of Financial Services
Board of Funeral, Cemetery, and Consumer Services
April 2013
JUSTIFICATION FOR THE RULE
Chapter 497 of the Florida Statutes requires regulation of sales of preneed funeral contracts. All
regulation of preneed sales under Chapter 497 is funded solely by fees paid by the licensees; no general
revenue is used for regulation under Chapter 497; see 497.140(1)(b): "It is the legislative intent that the
costs of regulation under this chapter be provided for by fees collected under this chapter."
Rule 69K-5.0024 implements s. 497.453(6) and (9), Florida Statutes, and raises revenue for the
implementation of Chapter 497, Florida Statutes. Sections 497.453(6) requires that a rule be adopted
specifying an amount to be remitted to the Department of Financial Services, for each preneed contract
sold; the current amount is set at $6 per preneed contract sold. The statute provides that the amount
to be remitted cannot exceed $10 per preneed contract sold.
Section 497.453 is part of Part IV of Chapter 497. Part IV of Chapter 497 regulates the preneed sale of
funeral goods and services in Florida. “Preneed sales” refers to the purchase by a person, before their
death, of services and merchandise to be used after the person dies, for the final disposition of the
person's bodily remains. For example, this might include funeral director services, embalming, viewing
of remains, casket, burial service, headstone or other grave marker, or alternatively, cremation service.
Part IV of Chapter 497 provides a comprehensive regulatory scheme regarding preneed sales and sellers.
Statutory requirements include, among other provisions:
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Preneed sales companies must obtain a license under Chapter 497, and the regulator must
determine if they meet certain net worth requirements, if their principals are of good
character, conduct a criminal background check, etc.
Preneed sales companies must place certain portions of sales proceeds in a trust, that is
periodically examined by the regulator.
Complaints by consumers against Preneed sales companies must be investigated by the
regulator and where justified, disciplinary action must be taken by the regulator against the
preneed sales company.
The preneed contract forms used by the preneed sales company must be reviewed and
approved by the regulator.
Each individual sales agent of a preneed sales company must be licensed as a preneed sales
agent under Chapter 497.
Because preneed sales by their nature involve payment now in exchange for a promise by the seller to
perform years later, preneed sales have long been significantly regulated for the public good. See, for
example, the regulation of preneed sales in 1953, at Chapter 639, Florida Statutes (1953). The Division
estimates that approximately 95% of all states regulate preneed sales, including preneed sales agents.
Under s. 497.453(6) and (9), Florida Statutes, as implemented by rule 69K-5.0024, each calendar quarter
each preneed sales company must remit to the Department of Financial Services (DFS) $6 for each
preneed contracts sold in the prior quarter.
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STATEMENT OF ESTIMATED REGULATORY COSTS
There are typically in the range of 320-340 licensed preneed sales companies (the number goes up and
down slightly as new companies enter the market and other companies cease operations, are acquired,
etc.). Each of these preneed sales companies that made any sales in the prior calendar quarter must file
a report with DFS and pay a fee of $6 per preneed contract sold in the prior calendar quarter.
The actual remittances paid, by FY, have been as follows:
FY 2010-11 $580,431
FY 2011-12 $595,300
The average annual aggregate remittances, over the last three years, are $587,865 per year. Multiplying
this average by five years, the total aggregate remittances were $2,939,327.
All preneed licensees pay the same $6 per contract, but the aggregate paid by each preneed licensee
differs significantly from one preneed licensee to another, because of variation in how many preneed
contracts each preneed licensee sells.
Each quarter, the Division mails each preneed licensee a quarterly reporting invoice form for their use in
making the quarterly remittance. Preneed licensees fill the form out, showing the number of preneed
contracts sold in the prior quarter, multiplied by $6 per contract, and attach a check for the amount due.
The licensee then mails this back to the Department of Financial Services receipts office. The
information needed to fill out this quarterly invoice is typically readily at hand to the preneed licensee,
as the preneed licensees must track sales information for income tax purposes. It is estimated that it
takes a typical preneed licensee 45 minutes per quarter to collect from its accounting records the
information needed to fill out the quarterly remittance form, cut the check for the required remittance,
address the envelope to the Department of Financial Services, insert the quarterly invoice and check,
and place the envelope in the mail. If the value of the time of the preneed licensee's staff doing this
work is estimated at $25 per hour, the cost per quarter is estimated at $18.75 per preneed licensee per
quarter. Multiplying this times 330 preneed licensees equals $6,187 per quarter in aggregate.
Multiplying this times four quarters per year equals $24,750 per year in aggregate for all preneed
licensees. For 5 years, this equals $123,750 in estimated aggregate transactional costs over 5 years.
1. Direct or Indirect Economic Impacts
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
2010
2011
2012
74,611
94,698
98,307
99,041
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In addition, the number of new preneed contracts sales agents licensed has been stable over the last
several years:
2010
2011
2012
760
821
795
The growth in the number of preneed contracts sold, and the relative stability in the number of new
preneed sales agents licensed, indicates a healthy preneed industry in Florida, especially considering the
severe Florida and national recession over the last several 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 person coming into Florida to sell preneed must
comply with Florida's preneed licensing laws, including licensing of preneed sales agents. Conversely, if
Florida-based sellers of preneed contracts want 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 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 has 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).
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?
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The Division answers this question in the negative. The fees and transactional costs identified in this
Compliance Economic Review have been in place for years, so no additional cost will result. (See
economic analysis, above.)
2. NUMBER AND TYPES OF INDIVIDUALS AFFECTED
There are typically in the range of 320-340 licensed preneed sales companies (the number goes up and
down slightly as new companies enter the market and other companies cease operations, are acquired,
etc.). There is significant variation among the licensed preneed sales companies.
The licensed preneed sales companies are also, per statutory requirement, either a licensed cemetery, a
funeral home, or a direct disposal establishment. In size, the licensed preneed sales companies range
from a few very large multi-state firms, to small funeral homes operated by a family with only 2 to 4 full
time staff.
3. 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
There will be no additional costs to the Division to enforce the rule. The rule has been in effect for
many years and all staff and resources needed to implement the rule are in place. The Division
estimates that it takes on average approximately 10 minutes for Division staff to process a quarterly
remittance under the rule. If the value of staff time is estimated at $15 per hour, the cost to the Division
to process a single quarterly remittance is $2.49. Multiplied times 330 remittance invoices per quarter,
this equals $824 per quarter; times four quarters per year, this equals $3,299 per year. Multiplied times
5 years, this equals $16,499 estimated aggregate 5 year processing cost.
There will no cost to any other state or local government entity for enforcing the rule.
4. TRANSACTIONAL COSTS
Each quarter the FCCS Division mails each preneed licensee a quarterly reporting invoice form for their
use in making the quarterly remittance. Preneed licensees fill the form out, showing the number of
preneed contracts sold in the prior quarter, multiplied by $6 per contract, and attach a check for the
amount due. This is then mailed back to the Department of Financial Services receipts office. The
information needed to fill out this quarterly invoice is typically readily at hand to the preneed licensee,
as the preneed licensees must track sales information for income tax purposes. It is estimated that it
takes a typical preneed licensee 45 minutes per quarter to collect from its accounting records the
information needed to fill out the quarterly remittance form, cut the check for the required remittance,
address the envelope to the Department of Financial Services, insert the quarterly invoice, check, and
place the envelope in the mail. If the value of the time of the preneed licensee's staff doing this work is
estimated at $25 per hour, the cost per quarter is estimated at $18.75 per preneed licensee per quarter.
Multiplied times 330 preneed licensees, this equals $6,187 per quarter in aggregate. Multiplied times
four quarters per year equals $24,750 per year in aggregate for all preneed licensees. Multiplied times 5
years, this equals $123,750 in estimated aggregate transactional costs over 5 years.
As noted earlier in this document, preneed licensees are required to deposit a portion of all sales of
preneed contracts into a preneed trust, to assure availability of funds to perform the preneed contract
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at time of need. A significant number of preneed licensees, especially small to moderate size preneed
licensees, use a servicing agent to handle for the preneed licensees the trust accounting and trust
deposits and withdrawal records and processes. The servicing agent specializes in providing recordkeeping and administrative services concerning preneed sales and trust data. The servicing agent is
typically a firm with a significant size staff and a robust, high level computer system. The licensees
report sales data, including payments received, to the servicing agent, and the servicing agent has staff
that input the data into the servicing agent's computer systems. These servicing agents typically provide
a bundle of services to the licensee, some or many of which serve licensee business needs not related to
regulatory requirements. The servicing agent thus has all information required to make the quarterly
remittance, and in fact the serving agent does make the quarterly remittances for the preneed licensees,
saving the preneed licensee the time and effort. The servicing agent typically charges a fee to the
preneed licensee, related to the dollar amount of preneed trust assets it services for the preneed
licensee. The servicing agent typically does not charge an additional or separate fee for this service, and
the service in included in the basic fee charged.
5. ANALYSIS OF THE IMPACT ON SMALL BUSINESSES
The Division estimates that there are approximately 304 small businesses affected by the rule,
statewide.
More specifically, 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 of preneed contracts are not distributed ratably among the approximately 340 preneed sellers.
The Division estimates that the 20 largest preneed sellers (who are not small businesses) sell
approximately 74% of all preneed contracts sold, and the remaining 320 preneed sellers sell
approximately 26% of the preneed contracts sold.
As noted in a prior section of this document, the Division estimates that the transaction costs per
preneed licensee (to include small businesses) that files its own quarterly remittances, is $18.75 per
quarter.
All preneed sellers collect the $6 per preneed contract from the purchaser of the preneed contract.
METHODOLOGY USED TO CONDUCT THE ANALYSIS
Data as to amounts paid as remittances under the rule in issue were taken from Department of Financial
Services receipts accounting records. Data as to numbers of licenses in force and issued are taken from
Department of Financial Services computer systems relating to licenses under Chap. 497. The Division
has staff that has extensive experience in deathcare industry regulation and, to a significant extent, the
economics and empirical characteristics of deathcare industry businesses, particularly deathcare
industry licensees.
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