Bodies of Indigenous families’ loved ones left in morgues after collapse of funeral insurer Youpla

Aboriginal families in at least two states have been forced to leave the bodies of their loved ones in morgues because they can't afford a funeral after the financial collapse of their insurer, which has previously been exposed for its "misleading and deceptive" conduct.

The collapse last month of Youpla Group has sparked calls for compensation for the more than 13,000 low-income Aboriginal people who face losing all they have paid into the funeral fund.

Labor has said if it wins government it will set up an inquiry into the collapse, while the Morrison government has dismissed calls for compensation.

But those calls for urgent help are escalating amid revelations that Aboriginal families have had to crowdfund funerals and been forced to leave the bodies of their loved ones in morgues for weeks while they raise the money.

Trish Frail, a Ngemba woman and Greens candidate for Parkes in New South Wales, said it took her cousin's family three weeks to raise the funds to pay for her funeral.

"All the while their sister, niece, aunty and cousin was in the morgue. That added so much unnecessary pain and stress," Frail said."This needs more than an inquiry, this needs an immediate financial rescue package for families dealing with this grief and financial trauma."

The minister for financial services, Jane Hume, said people could apply for a state-assisted funeral, commonly known in the industry as a "destitute" or "pauper" funeral.

Under questioning by Labor in a Senate estimates hearing before the election, Hume described Youpla as "predatory" and "shonky".

"Something we should be really proud of is that finally we've put a stop to this organisation's predatory behaviour," she said.

"People affected should be aware that nobody in this country is unable to bury their loved ones without a dignified funeral."

But Kali Sailor, a Barada-Gabalbara woman, said suggesting a state-assisted funeral is "not good enough".

"I've been through a couple of pauper funerals, state-assisted funerals," Kali said. "In some cases you can't have a church service, it has to be graveside, and for a lot of our people who've been on missions that's huge for them.

"These old people, who stayed loyal to the churches, they expect nothing less than to be buried with a church service. Now, because of this collapse - on the government's watch - it's sickening, and it's really stressful.

"I've seen families have to leave their loved ones in the morgue for months because they can't get the money together."

Sailor said the federal government must step in to offer compensation.

"We've seen them come to the aid of other people in this country when other things have collapsed," she said.

State-assisted funerals have strict caveats. They are available only if a family can prove they have no other way of paying, and are limited to cremation or a very basic service provided by a government-approved funeral director.

In NSW, if relatives refuse a cremation and request a burial, the body will be buried in a common grave identified by a number with no other headstone.

In Sailor's home state of Queensland, families must prove that no other family members are able to pay. If a family qualifies for assistance, they may not choose the location of the funeral, or the funeral director.

Sailor and her husband paid into a Youpla fund for 20 years, until they heard in March the company had gone into liquidation.

"And then when I started doing a bit of research looking into what's been going on, I found out they hadn't been regulated by the government. They've made a fool out of the government, but at our expense, at the Aboriginal and Torres Strait Islander communities' expense," she said.

Sailor and her husband stand to lose $16,500. They have since tried to find alternatives but Sailor said because of chronic ill-health neither of them can get life insurance.

"We thought we were being constructive about doing something for sorry business," she said. "We thought we'd taken that burden off our family. There's a lot of frustration. We are stressing out, trying to get something set up.

"I don't think it's fair that the burden should be on my children."

Youpla, previously known as the Aboriginal Community Benefit Fund, was a Gold Coast-based private business that for decades allegedly aggressively sold funeral insurance almost exclusively to Aboriginal people, including children and babies.

In April 2020 it was banned by financial regulators from selling any new policies because it did not have a financial services licence, but at its peak had about 25,000 clients.

Member contributions to the three funds at the time it collapsed totalled $39.2m. The liquidator said there was now just $11.9m left and it remained unclear whether any contributors would see a refund.

The Australian Financial Complaints Authority has received more than 500 complaints against Youpla Group funds since 2018, and has issued 178 decisions against the group for "misleading and deceptive conduct".

Labor has said if it wins government it will establish an inquiry into Youpla's operation.

The proposed inquiry would cover topics including the part played by Youpla's directors and the bodies that regulated the fund - the Australian Securities and Investments Commission and NSW Fair Trading.

Labor's shadow assistant treasurer Stephen Jones and Indigenous affairs spokesperson Linda Burney wrote to the government two years ago warning that Aboriginal families would be "ripped off twice" if Youpla collapsed.

In the letter to the treasurer Josh Frydenberg and minister for Indigenous Australians Ken Wyatt, Burney and Jones asked for a "clear commitment from the government that in any eventuality, policyholders and their families will be protected".

Frydenberg and Wyatt did not respond to the letter, Jones told Guardian Australia.

"Clearly, whoever wins the next election is going to have to deal with this issue, and face up to the fact that the government has been negligent," Jones said.

NSW Greens MP David Shoebridge said the federal government should underwrite all current policies and pay for funerals this policy year.

"This is grief layered on grief," Shoebridge said. "Having let this happen, the federal government needs to step up and provide an immediate solution for families dealing with sorry business."