A driver for these changes is instability in the market. Recent failures have put the remaining suppliers under increased pressure as they take on the customers and outstanding complaints of their competitors. Through the proposed measures, Ofgem is seeking to both minimise disruption to the market and protect customers from harm – a guiding principle of financial services regulation.
The key indicator of a more interventionist approach from Ofgem is the proposal of dynamic assessments, which will take place when the regulator becomes concerned about the financial health of a supplier. Ofgem will monitor for warning signs, such as missed payments, poor pricing practices and negative customer service reports, which might then trigger further investigation. This is similar to the review process followed by the FCA, which can be costly for firms that fall out of step with the regulator. So, what can energy firms do to satisfy more stringent customer service licence conditions and avoid unwanted regulatory scrutiny?
Since the financial crisis, the UK Customer Service Index has reported a staggering reversal of customer experience in financial services. The banking sector is now near the top of their annual tables, whereas utilities lies near the bottom. In financial services, communications have been vastly improved, with key indicators such as updates throughout the complaints process and ombudsman signposting feeling less complicated than within the energy sector.
This success is, in part, thanks to the FCA’s focus on whether the right outcome is achieved for the customer in any given customer service interaction. Through our work in the financial services sector, we have seen that this requires a firm-led cultural shift: from seeing regulation as a box-ticking exercise to a customer-centric model in which good outcomes are prioritised at every stage of the relationship.
What has changed?
The FCA has introduced several key regulatory changes that could serve energy suppliers well in the quest for good customer outcomes and best practice compliance. Policy statement PS15/19, for example, heralded new complaints handling standards that are now articulated in the dispute resolution (DISP) section of the FCA’s handbook. Compared to the Complaint Handling standards set out by Ofgem in 2008, this up-to-date guidance offers insight into how a robust complaint handling process has transformed the perception of not just individual firms, but the financial services sector as a whole.
Meanwhile, the Senior Managers & Certification Regime (SM&CR) is a critical tool in the FCA’s regulatory toolbox. This puts the onus on senior individuals to accurately document the steps taken to ensure robust compliance, from policy-setting and product design to customer engagement, ensuring that good customer outcomes are at the heart of their business.
Ability to pay principles are another essential tool. Even prior to the Covid-19 pandemic, affordability and vulnerability are areas of particular concern to regulators in every sector. An effective approach to affordability requires stringent processes to be put in place to conduct appropriate research into a customer’s circumstances. Moreover, it is crucial that firms clearly communicate the terms and conditions of products to customers. Getting this right at the start will result in fewer defaults and higher customer satisfaction levels. This can have the beneficial knock-on effect of lower mitigation costs and fewer resources required for avoidable complaints.
In addition, call handlers must be well trained in the identification of vulnerability, as customers transition in and out of challenging situations. The human touch is essential, and frontline staff need to feel confident that they have the training and skills to allow for empathetic and, at times, challenging conversations. They can be supported with data-led technology to create a single holistic view of each customer, helping to spot signs of vulnerability at the earliest opportunity. Once vulnerable customers are identified, colleagues with adequate training can sensitively intervene and have the conversations required to provide tailored solutions for that individual.
Within the utilities space, this is particularly important for collections and arrears, which have seen increased activity since Ofgem allowed for the resumption of debt collection in July this year. As the changing economic situation forces more people into financial hardship, firms are also aware that the numbers of ‘can’t pay’ and ‘won’t pay’ customers are increasing. With this in mind, it is vital that collections are adequately resourced by experienced call handlers who can respond to customers with empathy, to achieve resolutions and reduce the chances of escalation to complaint stage.
Arresting the decline in customer satisfaction
Worryingly, Ofgem’s latest Consumer Perceptions of the Energy Market report (April 2020) reveals a significant long-term trend of declining customer satisfaction with the outcome of complaints made to energy firms, from 71 per cent in Q4 2018 to 58 per cent in Q2 2020. More recently, satisfaction with the time taken to resolve complaints declined in the first half of this year, from 25 per cent in Q4 2019 to 20 per cent in Q2 2020. With the survey revealing that 37 per cent of customer complaints remained live for over a month, this is hardly surprising. However, with the right resourcing strategy it is possible to improve customer satisfaction by ensuring that disgruntled customers receive the right outcome in good time.
Interrogating the cause of complaints can also pinpoint to firms where improvements and interventions are needed in the customer journey. Proactively addressing these issues will reduce the volume of repeat escalations, whilst demonstrating to the regulator a proactive approach to drive up standards. Assertive and regular communications will lessen the need for customers to raise a query or complaint in the first instance.
If a change in regulatory headwind is confirmed when Ofgem reports the conclusion of its recent consultation into licence conditions, there is clearly much that the energy sector can learn from their colleagues in financial services. Suppliers might even voluntarily implement some of these measures in an effort to introduce best practice measures. The rewards are multiple: strong compliance, improved customer outcomes, improved customer satisfaction, reduced churn and increased advocacy. Firms that successfully drive up customer standards will not only satisfy the regulator, they will also earn the trust and loyalty of their customers.