By Arathy S Nair
(Reuters) - Britain's funerals industry could face formal investigation after the UK competition watchdog found that high prices were taking advantage of grieving families.
An initial market study launched six months ago revealed above-inflation price rises for more than a decade, the Competition and Markets Authority (CMA) said on Thursday, hitting the shares of funeral services company Dignity (L:DTY).
The CMA also said it found that larger chains in particular have consistently raised prices year on year and that efforts by some to introduce cheaper funerals do not go far enough.
The funeral services market is dominated by Dignity and Co-op Funeralcare, part of mutually-owned Co-Operative Group .
Dignity, the shares of which slumped 18 percent to 827 pence, said it was considering the recommendations in detail, adding that it has engaged with the CMA since the study was announced in June.
Co-op Funeralcare said it had worked closely with the CMA throughout the watchdog's market study, adding that there was "still more to do" and reiterating its commitment to providing more affordable funerals.
The CMA said in its interim report that Dignity's profit margins have been well above those of similar businesses operating in some other countries.
Britons generally spend between 3,000 pounds and 5,000 pounds ($3,831-$6,385) organizing a funeral, with the price of essential elements having increased by more than two thirds in the past 10 years, the CMA said.
The scale of these price rises -- at almost three times the rate of inflation -- does not appear to be justified by cost increases or quality improvements, the regulator added.
"People mourning the loss of a loved one are extremely vulnerable and at risk of being exploited. We need to make sure that they are protected at such an emotional time and we're very concerned about the substantial increases in funeral prices over the past decade," said CMA Chief Executive Andrea Coscelli.
The regulator also said it was difficult to compare options as prices are often not available online. Dignity said in a statement that it was committed to making funeral prices for all its branches available online by April next year.
CMA said it would be consulting on a proposed market investigation and welcomed views on the issues identified in its report by Jan 4.
"The best-case scenario is that the CMA just ends up asking for greater visibility on pricing. However, the tone of the statement suggests greater remedies will be required," said Peel Hunt analyst Charles Hall.
A CMA spokesman said it is too early to say what specific remedies the watchdog might pursue.