Posted: 31st August 2016
Ofgem has long sought to ensure energy suppliers treat customers fairly (TCF), but it was in June 2013 that the foundations of SLC 25C (Standards of Conduct) were first laid out, marking the start of the explicit focus we see today.
SLC 25C “requires licensees to take all reasonable steps to achieve the Standards of Conduct, and to ensure that they interpret and apply the Standards in a manner consistent with the Customer Objective of ensuring that each domestic customer is treated fairly”.
The notion of treating customers fairly is clearly something that is just and worth enforcing; not only for the standard of customer outcomes, but the positive knock-on effect it has on advocacy and brand. Embedding regulation is always a process of transition, but three years on from the introduction of SLC 25C, it’s fair to say that the industry should be much further along in its journey.
Indeed, recent regulatory action in this area has reiterated the need for firms to improve.
No area of the customer base is more at risk of experiencing poor outcomes and unintended consequences than those who are in vulnerable circumstances, and there is evidence given the regulatory action referred to above that standards are not being met in this area. Despite TCF calling for all customers to receive the same high quality experience that fits with their individual circumstances, the sensitive needs of vulnerable customers often mean:
- They are the customers most at risk of suffering detriment
- They can be severely impacted when they do encounter difficulties
- Their specific issues are not always well understood and so solutions are typically more difficult to administer and often less effective
Focusing on how vulnerable customers can be better provided for will allow firms to make the most marked improvements in terms of their overall treatment of customers – but how can energy firms ensure they are equipped to react to vulnerability?
The challenges of vulnerability
Vulnerability takes on many different guises
The very concept of vulnerability and what makes a person vulnerable has long been debated in financial services. In the energy industry, consequences for customers whose vulnerability is not effectively provisioned for can range from being temporarily in arrears due to financial difficulties, all the way to experiencing long-term difficulties in engaging with their energy supplier, which can be life threatening if this results in loss of access to energy supply.
It’s important, then, that vulnerability is not seen as a static concept; it is changeable, incorporates a huge range of scenarios and can be temporary or long-term. The flexible nature of vulnerability therefore requires flexible solutions.
It’s the limiting factor to treating your customers fairly
I refer to vulnerable customers as ‘the limiting factor’ in TCF because of the potential sensitivity of their needs and the fact that they are more difficult to provision for. If firms can ensure their treatment of vulnerable customers is effective, then they will be in a much better position to provide good outcomes to those whose needs are not so complex.
For obvious commercial reasons, firms need to design products and services with their core customer base in mind. An unintended consequence of this is that niche customers with more sensitive needs are marginalised and their issues magnified. In recognition of this, the majority of firms we have engaged with have built teams that look to mitigate potential detriment and offer these customers the appropriate level of service.
It’s about the letter and the spirit of policy
Many firms have precisely the right approach here by trying to embed these new teams into their ‘business as usual’ (BAU) operations. The danger here lies in failing to absorb these teams, or at least their outputs, effectively. Having recognised customers requiring fairer treatment and put the effort into developing policies and processes to deliver fair outcomes, a business must look to ensure they enact both the letter and the spirit of these policies. Only then can a firm evidence that it is treating all customers fairly.
Ensuring that this is managed at the right time and in the right manner is imperative. Embedding an insufficient suite of policies and processes can of course cause issues. Examining what good outcomes look like and whether they are being provided can be determined via focused outcomes testing, which provides a firm with both evidence and assurance. If a firm can ensure this activity is risk-based, they will be able to focus on those customers who are most in need.
Senior endorsement and training and competency are the key to servicing vulnerable customers
Ensuring staff know how to recognise vulnerability and react to it is the role of both a robust vulnerability policy that is endorsed from the top of the business and a great training and competency programme. Senior leaders can play a key role in increasing the speed and momentum of embedding what is essentially a cultural change (where work is focused on customer outcomes).
The result of training out process as a rigid set of principles to be adhered to is inflexibility and increased potential for detriment where consumers’ needs are complex or sensitive. When it comes to creating and training out processes, does your firm cover the kinds of vulnerable situations customers may find themselves in and how frontline staff should react? Does your firm seek to give a level of autonomy to frontline staff to protect customers from suffering detriment at the hands of overly prescriptive processes?
Bringing vulnerability into the fold
In their quest to embed a best practice approach to vulnerability, as well as familiarising themselves with the issues above, firms should seek to engage with their peers, trade bodies and third parties on the issues. This can assist in innovation and assurance as well as highlighting areas for further improvement.
Ofgem’s shift towards principles-based regulation will likely compound some of the difficulties firms currently face regarding treating niche customers fairly, at least in the short term.
However, energy firms who invest earliest and embrace the changes (which are recognised as being a positive step for consumers) will, like many firms in financial services, feel the benefits – not only from a compliance perspective, but also in terms of building customer advocacy and benefitting from a commercial point of view.
Huntswood's white paper on vulnerable customers in the utilities market gives firms great insight into these issues and more.