Ofgem has ended its development of a central database of disengaged customers – a scheme dubbed a “spammer’s charter” by critics.
The database was one of the main remedies recommended by the Competition and Markets Authority in 2016 following a two-year investigation into the energy retail market.
The aim was to enable rival suppliers to contact disengaged customers to offer them better deals than their current supplier. The database was to be populated by customers who had remained on a standard variable tariff for at least three-years.
The initiative was met with widespread opposition, first and foremost due to fears that customers would be flooded with unwarranted marketing, further eroding trust in the industry. Concerns were also raised over compliance with data protection laws and suppliers cherry-picking the most valuable customers.
Following a series of delays, Ofgem put the project on hold in April whilst it undertook a review. The regulator has now completed its assessment and decided to shelve the programme indefinitely.
In an open letter to stakeholders, Ofgem deputy director for consumers and market, Anna Rossington, wrote: “We stated that we wanted to use the opportunity to step back and review the programme, testing whether it was on the right track to deliver the best outcomes for disengaged consumers in the most appropriate way.
“We have now completed the review and we consider there may be more effective ways of enabling the necessary data to be shared, aligning with our open data and data mobility initiatives.
“As a result, we have decided not to build a database of disengaged consumers at this time.”
She continued: “Following government legislation, Ofgem implemented the default tariff cap at the start of this year. The cap provides protection to all customers on default tariffs and has removed around £1 billion of consumer detriment.
“We consider our focus should be on determining how best to ensure that the retail energy market works more effectively when the current price cap is lifted – as it must be no later than 2023.”
The letter implies that the work has not been wasted as the project has been “instrumental in the development and testing of a number of consumer engagement interventions.”
Latest findings
The CMA also recommended in 2016 that Ofgem establish an ongoing programme of trials and research to find new ways to engage inert customers.
Alongside the letter, the regulator has published a report on its conclusions from the first three years of trials as well as findings from some of the latest.
They include the most recent iteration of Ofgem’s collective switching trial, which involved 90,000 customers on a standard variable tariff and took place between January and March of this year.
Participants received a series of letters directing them to an exclusive 12-month fixed tariff negotiated by an independent third party that also offered them help to switch. Unlike in previous trials, they did not have to provide complicated information about their existing tariff to receive a personalised savings calculation.
The customers who received the letters were around seven times more likely to switch that those in the control group – 30 per cent versus 4.5 per cent. Those who did shaved an average of £263 from their annual bill.
The switching rate for vulnerable customers on the Priority Services Registers – who otherwise tend to switch less frequently – was almost as high as for other customers in the trial.
Ofgem has also published the findings from its Cheaper Market Offer Communication trial – it’s largest to date, involving 600,000 customers on a default tariff.
The trial took place over the summer of 2018 and was a sequel to the Cheaper Market Offers Letter trial in which participants were sent a letter – either from their existing supplier or Ofgem – offering them three cheaper tariffs from across the market.
Against a baseline of 1 per cent in the control group, 2.4 per cent of customers who received an Ofgem-branded letter switched and 3.4 per cent of customers who received a supplier-branded letter switched.
The Cheaper Market Offer Communication trial involved a wider customer base from a larger number of suppliers – two large and three medium – and tested a series of refinements to the intervention: adding their existing supplier’s cheapest tariff; sending the offer via email; and sending a subsequent reminder.
Compared to 2.9 per cent in the control group, the switching rate averaged 6.8 per cent across all customers who were sent letters. The most effective intervention was a letter including their supplier’s own cheapest tariff and followed up with a reminder, which raised the switching rate one-and-a-half times to 7.5 per cent.
Ofgem said the only variation that had any substantive impact on switching was the reminder, which increased switching rates by 27 per cent. It said the letters worked best with customers who had been on their tariffs for the longest, but there were no segments with which they were ineffective.
Then there are the results from End of Fixed Term Communications trial, which unlike those previously mentioned targeted more engaged customers on a one-year fixed price tariff. All were drawn from a single supplier.
Participants were sent a reminder to switch to coincide with the end of their current tariff. Drawing on research from its Behavioural Insights Unit, Ofgem designed the letter to emphasise the financial consequences of their actions.
Price differences were framed as potential losses from defaulting onto a standard variable tariff rather than potential gains. The letter was kept simple and listed a series of clear steps for switching.
The trial took place in March 2019. The switching rate among customers who received the letter was 28 per cent compared to 19 per cent among customers in the control group who did not.
Wider conclusions
In the three years since the CMA released its final report, Ofgem has conducted a total of ten trials involving more than 1.1 million customers. Over 94,000 have switched, collectively saving around £21.3 million.
In a report drawing conclusions from across the trials, the regulator said interventions should be:
- short, simple and easy to understand;
- attention-grabbing, driving home the potential savings from switching;
- personalised, with some customers needing a gentle nudge and others more holding and reassurance;
- and action-focused, setting out exactly what customers need to do next to switch.
Writing in the foreword, Ofgem chair Martin Cave said: “This paper shines a light on the benefits of using behavioural science in regulated markets. It presents the work of a three-year programme of research, which has demonstrated with great effect both the power of trialling in a regulatory context and the positive consumer outcomes that can be realised by designing policy interventions based on actual customer behaviour.
“A big driver of this work was the Competition and Markets Authority’s recommendation in 2016 that Ofgem establish an ongoing programme of trials to promote engagement in the domestic retail energy markets. Having been heavily involved in this investigation in my role as deputy panel chair, it is hugely encouraging to see this remedy being explored with positive outcomes.”
“This work demonstrates the power of trialling to provide robust evidence on what works in practice, providing a basis for future regulatory changes,” he added. “I am keen that we, and other regulators, continue to use this test-learn-adapt approach in policy-making.”