Debt is a growing macroeconomic problem. As government reforms to the welfare system take hold and political uncertainty filters through into seemingly relentless inflationary pressure on living costs, more and more households are feeling a squeeze on their ability to pay for essential goods and services.
This is a big problem for utilities who need to find new and more effective ways of managing bad debt in order to survive – but who will need to overcome major issues relating to public trust and data handling to do so.
These were the problems pondered by collections and customer care professionals at Utility Week’s Consumer Debt Conference on 16 March. The event, sponsored by credit management specialist Arum, provided insight into the underlying social and economic trends driving consumer debt in the UK. It also highlighted how utility regulators are responding to these developments and identified industry best practice in tackling debt, via process innovations and the introduction of powerful new approaches to data segmentation and analysis.
Perhaps the overriding message from conference speakers was that strategies for tackling bad debt must recognise its transient and unpredictable nature. Financial vulnerability is not a permanent state, but a condition that can arise for any consumer as a consequence of unforeseen and complex events in their lives, they said.
This being the case, there is great scope for utilities to think laterally about the way they communicate with consumers, capture data and collaborate with other organisations to build more robust pictures of their customers’ ability to pay – and to help customers regain financial equilibrium in a way that will build loyalty.
Simple steps, such as bringing billing and collections teams together, can reap big benefits, delegates were told. And looking to the future, integrating debt management into plans to utilise smart meter data could enable great leaps in proactive debt prevention and mitigation, it was suggested.
Opening up the full potential of consumer data will not be without its challenges, however. Utilities face well-documented consumer trust issues, which mean access to and use of data remains a thorny issue. Meanwhile, laws around the sharing of consumer data between organisations are about to become a great deal more prescriptive.
Multiple speakers sounded alarm bells about the arrival of the General Data Protection Regulation (GDPR) 2018 and the impact it will have on the ability or willingness of utilities to be innovative in their use of data. The regulations will introduce stringent new rules regarding data sharing and portability, as well as consumer access rights. Penalties for breaches will be brutally punitive and may make it “too hard” for utilities to build a detailed understanding of “transient vulnerability” said one expert.
Notwithstanding this challenge, speakers from Ofwat and Ofgem made it clear that debt management practices will come under increasing scrutiny, for both price-regulated utilities and competitive retailers. Innovation to reduce the levels of bad debt carried by the sector will be expected.
Views from the top table:
Meghna Tewari, head of customer vulnerability strategy, Ofgem
“What could be the shape of government intervention in energy retail? One option could be price regulation… My position on this is that such interventions should be time-bound and that there should be a clear exit strategy.”
Sandy Duckett, principal utilities and collections consultant, Arum
“Data quality is something almost every utility is addressing. It creates problems in your customer journey. It fuels inaccurate billing, increased contacts, complaints and ultimately, bad debt.”
John Russell, senior director, strategy and planning, Ofwat
“For PR19, when companies submit their plans, we will be looking for efficient debt management practices and considering ways to reduce bad debt levels… We will challenge companies’ bad debt levels in our price-setting process.”
“The essential problem with credit, in all markets – macro, micro, corporate or sovereign – is essentially the same. It is information asymmetry… [This is] the cause of the structural problems which mean debt is such a big macroeconomic and personal problem.”
Deven Ghelani, director, Policy in Practice
“Sometimes it’s the in-work households – those that are doing everything the government wants them to – that are struggling the most.”
Key points to take away
1. Welfare reforms look set to make the average low-income household £41.45 per week worse off by 2020, says research by Policy in Practice
2. The poor are paying more for goods and services across the economy and especially for their utilities, say economic analysts
3. The introduction of GDPR may make it difficult for utilities to capture and share the data that could build a detailed understanding of transient vulnerability
4. Ofwat will challenge bad debt levels in the PR19 price setting process
5. Ofwat will release its “Unlocking the Value of Customer Data” report in June
6. Regulators across sectors are collaborating on ways of building broader visibility of consumer ability to pay for goods and services
7. Smart meters are expected to radically change the approach of energy suppliers to debt management and mitigation