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Levels of debt are on the rise, as economic uncertainty, rising costs, lower average income, and changes to welfare payments put pressure on the average household’s ability to pay their bills, and utilities are finding themselves catching the fallout.
It was with this in mind that delegates and speakers gathered at Utility Week’s 10th annual Consumer Debt Conference, sponsored by Lowell Group and FICO, to discuss how utilities can recognise and engage customers in vulnerable circumstances, work with third parties, and streamline their collections processes.
Debt is a key challenge for the utilities sector, especially as debts owing to them are a relatively low priority payment under the Universal Credit scheme. What’s more, it is an issue that won’t be going away any time soon. In the energy sector, although there are now fewer customers in debt than there were ten years ago, the average debt for those struggling is higher.
Customers now owe on average £628 before they start paying back debt on their electricity accounts – a 7 per cent increase on last year – and gas customers owe £622 – a 5 per cent increase. Meanwhile, in water, bad debt adds around £21 to each customer’s bill every year.
Helping the vulnerable
Inextricably linked to the issue of debt is that of vulnerability, because it is often customers in vulnerable circumstances who find it most challenging to pay. But how does a utility company manage its core business of making money while also supporting vulnerable people? Both water and energy companies have a variety of ways to help vulnerable customers.
Each water company has a social tariff, funded by the bills of everyone else. However, the issue currently is that, because these tariffs depend on how much customers in a water company’s area are willing to pay, they vary from region to region. The sector is in dire need of consistency in processes and, at the conference, utilities programme manager at Coventry Citizens Advice, Claire Differ, suggested there should be a standardised tariff across all regions, so that the level of support does not depend on where the customer lives.
Meanwhile, in the energy sector government schemes such as the Warm Home Discount – which offers a one-off discount on a customer’s electricity bill between September and March – have been set up to help those less able to pay.
Shared learning
Affordability is one of the four pillars of Ofwat’s methodology for its next price review, PR19. The regulator’s principal of strategy and policy Margaréta Serfozo-Matharu took to the stage to emphasise that affordability and debt are very much interlinked, and that collaboration and data sharing are key to resolving both issues.
Shared learning was one of the recurring themes at the conference. Companies increase the amount of knowledge and data they share, as well as learning from outside their own industry.
Initiatives are under way to make it easier for companies to identify customers in vulnerable circumstances. For example, the Priority Services Register helps energy suppliers and networks identify and work with customers in vulnerable circumstances. Some energy companies and network operators have agreed to work together with water companies to jointly signpost the extra help these customers can access for water and energy, and Ofgem is encouraging all energy companies to do this.
However, a company is not allowed to put a customer on the register unless they have that customer’s permission to do so. Ultimately, a customer’s willingness to engage depends on the extent to which a company can gain that customer’s trust. It is particularly difficult to engage customers in vulnerable circumstances, because they are often unwilling to admit, or don’t even know, they are vulnerable.
Meghna Tewari, Ofgem’s head of retail market policy, insisted that talking to customers is a must. “Dialogue is important no matter what you’re selling to the market, whether you’re selling bananas or energy, it is an important part of your business strategy.”
Engagement with customers could allow companies to identify customers who are struggling before they slip into arrears. Prevention, delegates concluded, is always better than cure, and this is where utilities should be focusing their attention.
Key takeaways
- Collaboration is key. Sharing of knowledge and data between utility companies will allow customers who are struggling to be identified more easily, and avoid the customer having to explain their circumstances more than once.
- Prevention is better than cure. Companies must do more to try and engage with customers in vulnerable circumstances early on, so they can prevent them getting into debt. Early intervention = less impact.
- Think outside your industry. Companies must avoid becoming too focussed on their own industry. They should learn from best practice in other sectors.
- Talk to customers. Engaging with customers is the best way to solve debt issues. However, companies must get the balance right so that they help rather than hinder customers.
- Engage with the third sector. Consumer groups are often more readily trusted by customers, so can gain a greater insight into their circumstances.
Views from the room
Meghna Tewari, head of retail market policy, Ofgem
“The price cap must not dilute the importance of good customer service”
Margaréta Serfőző-Matharu, principal, strategy and policy, Ofwat
“Affordability is a huge challenge for the water sector, and it doesn’t look like it’s getting better”
Michelle Atkinson, head of income domestic retail, United Utilities
“By better understanding our customers, we can use a targeted and segmented approach to debt recovery and adopt different collection strategies for can- and can’t-pay customers”
Sarah Sargent, UK director of customer experience, Lowell Group
“In financial services, probably five or six years ago we recognised that we needed to tailor our support for vulnerable customers”
John McMahon, C&R thought leader, EMEA, FICO
“What are your customers expecting from you? And how are you going to progress that within your current industry and within your current processes?”
Rob Mayer, head of collections strategy and business improvement, British Gas
“Not all levels of engagement are equal… We need to ask: how can we help, not hinder?”