The gap between good and bad customer service is widening in the utility sector. According to a report published by the Citizen’s Advice Bureau (CAB) last year, there has been a significant increase in customers getting into difficulty due to the poor handling of debt and disconnections, problems with prepayment meters and securing refunds, and inaccurate or late bills. Both energy and water companies were identified as key culprits in overcharging customers and the CAB called for regulators to do more to tackle this growing problem, particularly with regard to vulnerable customers.
A customer is classed as vulnerable by Ofgem if they are significantly less able to protect or represent their interests and/or are more likely to suffer detriment or more substantial detriment. Vulnerable customers are now identified not just by their characteristics (i.e. age or disability) but also by their circumstances (i.e. with dependants under five years of age) so that they can be vulnerable either in a permanent or transient way. It’s a definition supported by Ofwat which goes one step further by saying it “would like to move the sector’s thinking away from using the concept of ‘vulnerable customer’ and replace it with ‘customers in circumstances that make them vulnerable’ or ‘situations of vulnerability’”.
Regulation of vulnerability
Recognising the need to improve the ways service providers identify, engage and communicate with these customers, industry regulators Ofgem and Ofwat regularly provide guidance to their respective industries. Ofgem first published its Consumer Vulnerability Strategy in 2013 and has continued to focus on the following three core areas:
- Fair Outcomes – to eliminate disconnections associated with debt, enforce the concept of the vulnerability principle, and introduce price measures aimed at protecting consumers.
- Greater market transparency – to benchmark progress through the publication of market reports.
- Tougher compliance and enforcement action – to ensure providers are held to task and penalised if they fail to comply with the protections put in place for vulnerable customers.
The regulator updated its Consumer Vulnerability Strategy in October 2019, setting out its priorities up until 2025 and the outcomes it wishes to see, while Ofwat’s Consumer Strategy review, which captured responses from 36 stakeholders from water companies to customers to charities and was published in May 2019, is also focused on delivering more for customers.
Five year goals
Ofgem’s Consumer Vulnerability Strategy identified five core themes which now form the basis of its plans for the next five years. It now expects energy providers to...
- Improve the identification of vulnerability and smart use of data. Companies need to more effectively identify and help the people who need assistance by keeping the PSR up to date. They can do this through promoting self-identification and utilising and sharing smart meter data.
- Support those struggling with their bills. Vulnerable customers are more likely to be disengaged so companies should seek to assess affordability, put in place measures to support those at risk (including those likely to self-disconnect), ensure payment plans are affordable and seek to maintain communication effectively. Steps should also be taken to help off-gas customers move onto the gas network to lower their energy bills.
- Drive significant improvements in customer service for vulnerable groups. The diverse nature of vulnerability and resistance to engagement means companies need to seek to ensure a positive customer experience by tailoring their approaches and avoiding exclusion. New entrants to the market will need to adhere to a new set of licence conditions to bring their level of customer care up to standard and a similar licence will be applied to gas distribution companies and Distribution Network Operators. The PSR should be promoted to improve awareness and companies need to provide information on how they support vulnerable users as part of the information they supply for switching.
- Encourage positive and inclusive innovation. Technological advances can create exclusion, particularly when it comes to the less digitally savvy, so companies need to ensure access to products and services is maintained when innovating.
- Work with partners to tackle issues that cut across multiple sectors. Cross industry issues such as affordability, customer service and identification mean it makes sense for utility companies to share PSR data both within the sector and with charities. Ofgem is also committed to working with government social programmes to effect change and avoid gaps in service.
Ofgem stresses that these five priorities are not ‘optional areas for work’ and should determine the products and services that energy providers develop. It intends to monitor all five areas using a new framework and to publish the results annually in the Vulnerable Consumers in the Energy Market report and the Consumer Impact report.
Ofwat also works on a five year plan principle but does so slightly differently as it regulates a non-competitive monopolistic sector. Water companies are required to submit a five year plan for improvement and to report on their progress annually. These plans address infrastructure, the environment, customer service, and affordable bills, are reviewed by Ofwat and its final determination (known as the Price Review) is then published. The most recent, PR19, was published in December 2019.
It’s worth placing PR19 in the wider context of Ofwat’s strategy which was published just before, in October 2019. This sees the regulator call for providers to “meet their diverse needs, especially those of the most vulnerable” and reveals that Ofwat is considering new “high level licence obligations” which would include “binding requirements on how companies treat their customers and the most vulnerable in society”.
Issues in common
As with energy providers, water companies also use the PSR. Both sectors clearly have difficulty promoting self registration because while PR19 revealed that nine of the 17 companies will be focusing specifically on the way they service vulnerable customers, three of them will also be taking steps to make customers “more aware of priority services”.
Ofwat, in keeping with Ofgem, is also now focused on those struggling to pay their bills. It has identified three million customers as living in fuel poverty and has pledged to cut bills by 12% between 2020-25. Water companies will be employing a variety of measures to help customers who find it hard to pay, through initiatives such as concessionary tariffs (1.4 million), payment matching schemes (70,000) and hardship funds (20,000) by 2025. In addition, the stability of water pricing over this time frame is expected to help those on low incomes.
Finally, another common thread was the need for collaboration between utility providers and the charitable or third sector. Ofwat referred to the need to “work jointly with consumer bodies and other regulators in other sectors to provide a more holistic support framework for customers in vulnerable circumstances” suggesting it may also seek to emulate Ofgem in sharing PSR data more widely.
So, what can we infer from these regulators’ approaches in these two different sectors?
Clearly there are a number of areas that overlap, giving us some indication of where utility companies need to focus their efforts.
- PSR– companies need to more effectively identify vulnerable customers. To do this, customer data needs to be collected in a way that is customer-centric rather than focused on whether a vulnerability is financial or physical, permanent or transient, or other rigid parameters. Providers also need to ensure that they source and share PSR data across other utility sectors to help create a holistic view of the customer.
- Communicate – engage more consistently with customers and in a way that is sympathetic to their needs. An example of this is how providers handle Power of Attorney when they are required to speak to someone who represents the bill payer. Processes need to be in place to facilitate this communication and ensure effective customer service.
- Assistance – avoid automatic practices such as direct debit mandate increases and develop credit packages and tailored payment plans which help customers avoid self-disconnection or debt.
- Accessibility – products and services should be devised and offered in a way that makes them accessible to all over a variety of channels in numerous formats. Any technological innovation cannot be at the expense of inclusion.
- Collaboration – companies need to work closely with the third sector to ensure the way they communicate and engage with vulnerable users – and the strategies they use to help those struggling to pay – are appropriate.
What all of these issues come down to is good customer service but that’s not what vulnerable users have been getting. During 2017-18, the Ombudsman Services reported that 40% of complainants used words associated with vulnerability such as stressed, debt or mental health. Yet the figure is realistically bound to be much higher. Consumer Action Monitor found 64% of those who identify as vulnerable would find it stressful to lodge a complaint, suggesting many cases go unreported.
It’s these customers that utility companies need to find ways to identify, reach and resolve issues for. Reviewing processes can make it easier to register vulnerable users, put in place procedures to protect them, and help reach out using their preferred medium and in a way that works for them. This level of commitment can help pay real dividends. 56% of disabled adults say a supplier’s customer service reputation would influence who they switched to, which means caring for vulnerable customers is not just a good idea in terms of compliance but commercially too.