Ofgem challenges businesses to do more for vulnerable customers

Posted: 8th October 2019

An earlier version of this article was first published on Network, in September 2019. It has since been amended following the publication of Ofgem’s annual vulnerable consumers report.

Continuing on its mission of improving the understanding of vulnerability across the UK energy sector, Ofgem has just released its annual report, Vulnerable consumers in the energy market: 2019.

The report expands greatly on the work started in the regulator’s previously published draft vulnerable consumers strategy. This earlier paper identified five core areas in which the energy and gas regulator wants to drive improvements for consumers in vulnerable circumstances, including:

1. Improving the identification of vulnerability
2. Supporting those struggling with their bills
3. Driving significant improvements in customer service for vulnerable groups
4. Encouraging positive and inclusive innovation
5. Working with partners to tackle issues that cut across multiple sectors

Each of these five themes is underpinned not only by the regulator’s desired outcomes, but also one crucial goal – that is: ensuring better support for consumers who are at risk of self-disconnecting and decreasing self-disconnections in general. It is probably no surprise, then, this year’s report makes special reference to the fact that there have only been six disconnections due to debt this past year.

The regulator rightly sees this as a positive sign that its actions and initiatives are taking effect. But, as we know, indebtedness and financial difficulty do not necessarily make a consumer ‘vulnerable’, nor are they the only reasons they might be classed as vulnerable. There are many more factors to take into account, not all obvious and many shifting over time.

Even though the regulator’s report highlights improvements across the board, there is still plenty that businesses need to be improving within their own operations. Are they up for the challenge?

Defining vulnerability

There is no definitive, rigid or objective definition of vulnerability, despite many of the UK’s regulators (across multiple industries and sectors) attempting to provide one. The net is therefore fairly (and thankfully, in many cases) wide, encompassing people from all walks of life and at just about every level of society.

Ofgem defines vulnerability as:

“… when a consumer’s personal circumstances and characteristics combine with aspects of the market to create situations where he or she is:

• Significantly less able than a typical consumer to protect or represent his or her interests in the energy market; and/or
• Significantly more likely than a typical consumer to suffer detriment, or that detriment is likely to be more substantial.”

The City’s financial regulator has its own definition. Though it may sound very familiar to anyone working in utilities, there are subtle and profound differences that could mean more customers could be classed as vulnerable depending on the action (or inaction) of firms:

“A vulnerable consumer is someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.” – FCA, 2015

A definition such as this should not – indeed, cannot – be rigid, but can help in developing guidance on the identification and treatment of customers at risk of harm because of their circumstances.

Finding the right categories for identified customers

For utilities providers looking to do the best by their customers and their regulators, identifying which of their customers classify as vulnerable and how best to allocate them to the Priority Service Register (PSR) can be a challenge.

Ofgem’s new report highlights that more firms are managing to allocate customers effectively. There are now 6,703,753 electricity consumers and 5,646,740 gas consumers on PSRs. However, there is still room for improvement. Customers have reported a “variance in the quality and breadth” of the services provided by suppliers.

A problem for providers here is that it is actually rare that customers speak directly to them, unless it is to file a complaint. Limited face-to-face contact makes it even more difficult for businesses to know whether their customers belong on the PSR and how to categorise the different requirements.

Vulnerability can also take many forms, adding to the challenge. For example, it could result from a person’s age, physical or mental health, financial standing or a life event.

One contributing factor that firms can easily identify is age. However, simply knowing someone’s age won’t allow you to put them in the service category they belong in for the long-term. You would need to know much more specific information about them. For example, do they need any life-supporting equipment that would cease to function if a power cut occurred or they were disconnected? Do they have any medical conditions that could be worsened if they lost their heating?

Establishing which customers are in situations of vulnerability and engaging with them effectively is challenging for even the largest and widest-reaching companies, simply for the fact that there’s rarely one factor to consider.

It’s also vitally important that energy companies remember that customers may move in and out of vulnerability at various points throughout their life, requiring different forms of support at different times.

People’s circumstances are constantly changing. Financial stability can fluctuate, new babies are born, and people tend to end up with more medical issues as they age. Even sudden illness or a life event such as a divorce or death in the family can put someone in the ‘vulnerable’ category. The fact that you can be in a vulnerable situation one day and not the next goes to show how difficult it is to ensure the PSR is accurate and up-to-date.

This is where collaboration and data sharing are vital. There are many touchpoints to consider in the industry from the distribution network, the wholesaler, meter operators, to the suppliers. If customer contacts from all areas where continually updated and maintained, the PSR would be more accurate.

Identifying customers at risk

Early and effective identification of vulnerability is a constant challenge for companies as customers will not always self-identify in this way. Some firms have developed effective partnerships and systems to help identify customers at risk whereas others, particularly smaller suppliers and new entrants, have struggled. For consumers to be supported appropriately, energy companies need to have the appropriate policies and procedures in place for identifying vulnerable customers, as well as responding to them.

Ofwat, the UK’s water regulator, provided a detailed list of potential determining factors in its 2016 Vulnerability Focus Report that still provides a good starting point for utilities businesses looking to identify customers in vulnerable customers. A business might consider classifying a consumer as vulnerable if:

• The customer is in financial difficulty
• The customer is a pensioner
• The customer is a parent and / or displaying signs that they may not be able to cope with caring responsibilities
• The customer has a physical health condition (short- or long-term), especially one that will put them at disproportionate risk of harm during service interruptions
• The customer deals with mental health issues
• The customer has changed their payment habits
• The customer has changed their communication patterns
• The customer is living in a region of social deprivation (measured by indicators such as the Index of Multiple Deprivation)
• The customer’s life circumstances changed
• The customer is unaccustomed to paying utilities bills (for example, students or customers who are new to the area)
• There are economic indicators / changes in conditions that might suggest the customer may be at risk

Once a customer’s potential vulnerability at any given point is known, the company can tailor their interactions accordingly and set processes in place to update their classification. Some suppliers have specially trained, extra care teams to provide additional support to consumers in vulnerable situations. For example, Western Power Distribution engaged with Dementia UK and MIND to provide its staff with empathy training in an effort to improve engagement and help team members to identify the warning signs of vulnerability.

Vulnerability matters

How organisations treat vulnerable people is viewed as an indicator of an organisation’s culture and values. Firms must ensure their dealings with people in challenging circumstances are aligned with their ethos. As well as meeting increasing regulatory expectations, having robust policies in place means that customers feel more valued and are therefore more likely to stay loyal and become an advocate for the business.

According to Huntswood’s Complaints Outlook 2019, 81% of utility customers said they are currently dissatisfied with the empathy of the staff member they interacted with and 79% are dissatisfied with the knowledge of the staff member they interacted with. This demonstrates a real need for utility firms to engage with customers on an emotional level, beyond regulatory minimums.

Positive change begins with culture

In order to bring about a corporate culture change, training is critical.

Energy companies will need to:

• Consider how they can support their frontline staff and develop training that helps employees understand and identify vulnerability
• Know when and how to escalate vulnerability issues
• Deal with difficult customer emotions
• Deliver difficult decisions and outcomes to customers in vulnerable circumstances
• Manage their own emotions after a difficult call
• Ensure customers are treated fairly

In short, well-trained, knowledgeable and empathetic staff are the difference between poor and excellent outcomes for vulnerable customers.

Dealing with vulnerability goes far beyond compliance and processes. In its consultation paper, Ofgem specifically states that it wants “energy companies to have a corporate culture that focuses their efforts to identify and support consumers in vulnerable situations.” This shows how important it is for firms to act now and ensure their approach to vulnerability is thought-through and established at every level of the business.

Identifying vulnerable customers should not simply be a tickbox activity for the sake of compliance. It needs to be at the heart of the company ethos. People need to have their trust in essential service providers rebuilt. That can be most quickly achieved by giving a helping hand to those who really need it.