Financial hardship and energy debt
Covid-19, for many people, is about to have a far greater impact than health worries, concern for vulnerable relatives and curtailment of freedoms. Perhaps the most worrying, and uncontrollable consequence has yet to be fully felt – that of unemployment and loss of earnings. With 9.6 million people so far furloughed during the crisis and the current scheme due to end 31 March 2021, it is not surprising that future unemployment figures, currently at around 4.8%, are forecast to rise to anywhere between 9.7% and 13.2% over the next year.
The debt charity, StepChange is already reporting increases in enquiries in relation to energy debt. In July 2020, 29% of all new calls into the charity related to electricity bill arrears, a 2% increase when compared to the whole of 2019 and 6% increase when compared to April 2020. In June 2020, there were over 3,000 visits to the charity’s gas and electricity arrears webpage, a 322% increase on the previous month. These increases are being reported prior to the real economic impact of Covid hitting individual wallets.
For many people, this will represent the first time that they will have faced financial hardship, and significantly an inability to pay bills as they fall due. The bracket of people traditionally classed as ‘vulnerable’ by OFGEM is likely to rise, as financial strain, mental health issues and poverty impacts many of those who have traditionally viewed their energy bills as ‘hygiene’. The majority of these people would not naturally relate to the term ‘vulnerable’ in their lives pre-Covid. Almost all will view their status with embarrassment or shame, even where the situation causing the financial challenge is way beyond their control.
Preparing for the storm
Energy suppliers are constantly reported in the paper for negative reasons. Almost every week, there is a story about aggressive debt collection, inaccurate bills or failure to respond to customer queries. Anyone reading the letters would be justified in thinking that suppliers do not care about their customers, and more importantly their customers’ personal circumstances. Nothing could be further from the truth and with 28.4 million electricity meters in the UK, it is the exception rather than the rule which makes the press.
There is significant pressure enforced through stringent regulatory obligations set by OFGEM, surrounding the treatment of vulnerable customers. Energy suppliers are simply not allowed to aggressively chase debt nor disconnect customers under their licence obligations. OFGEM has published its own Vulnerability Strategy, which includes objectives focused on supporting those struggling to pay bills and driving improvements in customer service for vulnerable groups. However, developing the approach and actions to deliver these objectives is passed through as a responsibility of the energy suppliers under their licence conditions.
The answer is not easy, and innovative thinking and different approaches are required to deliver successful outcomes. One such example, is being led by outsourced collections’ specialist The Sigma Group. Working directly with suppliers, the company has researched and launched an engagement led product (Reach:Out). This product offers Suppliers a very different approach to debt collection, based on a proactive early engagement service for customers finding themselves in debt. The aim is to find the right outcome/path for the customer before they get sucked into the conveyer belt system where they are pushed to more unforgiving debt collection agencies.
In delivering their regulatory obligations suppliers have a fine line to tread. Fundamentally, they are businesses which need to remain solvent in order to continue to supply customers and provide choice through competition. Everyone acknowledges that energy bills are high, but what is less well understood, is the fact that most of the cash received through billing flows straight through the suppliers’ business and is paid out to other third parties. Only small margins are retained to support ongoing business operations. Suppliers cannot afford to write off debt where customers are unable to pay. They still have their own cost obligations to pay to the third parties, who take no account nor responsibility for outstanding customer debt.
Ultimately, significantly escalating debt resulting from Covid-19 hardship is likely to put additional pressure on supplier’s profitability and cashflows. This, in a world where the majority of suppliers, even pre Covid, were already financially strained due to price caps, competition and the costs of early stage business growth.
Traditionally most suppliers use variations on a theme of a standard Dunning process to try and collect debt, which is a well-worn process of escalating action. Without the ability to disconnect, the only real options open to suppliers is to try and engage with customers directly and move them onto agreeable payment plans or if that doesn’t work replace their meter with a prepayment meter. But this is a more expensive route for both customer and supplier and is therefore a last rather than first resort. Either way, where customers are already financially strained, the additional anxiety associated with an impersonal escalating process, can have a negative impact on customers who may well adopt a ‘head in the sand’ response to supplier’s actions. Breaking this pattern is a key priority of Sigma’s Reach:Out product.
Time to think differently
Another dimension, and one that is rarely talked about, is that suppliers themselves are staffed by people who have the full range of emotions and understanding that are required to effectively support individuals who have found themselves struggling with debt. Whilst often portrayed as faceless entities by the media, this is a false premise. Employees of suppliers are human, they care about giving a good service, and have empathy with their customers – particularly those in difficulty. It is a function of having pride in doing a good job, and a shared humanity. This key attribute of a business is often underplayed and overlooked as ‘caring’ is rarely promoted as a core business value in a competitive environment.
So, as the impact of Covid really begins to bite on jobs and unemployment, how can suppliers embrace a different way of supporting customers through challenging times, whilst at the same time ensuring that their own business remains viable?
It is worth looking sideways at other sectors for inspiration. The financial services sector arguably is more mature in dealing with vulnerability than the energy sector. The Financial Conduct Authority (FCA) published a report in July 2020 which presents the results of several case studies and their findings in the successful treatment of vulnerable customers. These findings are valuable and transition easily across to the energy sector.
1) Get better at recognising vulnerability and responding to customer needs: A key finding of the FCA is that customers value a timely, tailored approach to their issues. In order to do this, a supplier needs its frontline representatives to be able to identify when a customer is vulnerable. It will have taken courage to contact the supplier, and there are likely to be clues, whether through behaviour or emotion, that a frontline agent if properly trained, can pick up.
2) Recognise the value of sympathy: Whilst many frontline agents are naturally sympathetic, if not promoted as a core value, the ability to respond to the customer in a way that will deliver a positive outcome may be lost. The FCA’s research demonstrated that where a customer felt that they had a trusted relationship with the supplier, the customer was more likely to achieve a better long term outcome and importantly remain with the supplier. Empathy and care portrayed by front line staff was often the key to building this relationship. This caring attribute arguably needs to be promoted ahead of more traditional key performance indicators associated with debt recovery. This could present a major cultural and operational shift for many suppliers, but also a major opportunity.
3) The importance of empowered and knowledgeable staff: Where staff have appropriate knowledge and are able to respond flexibly during an interaction, outcomes are often better for both supplier and customer. Where staff are proactive in guiding customers on the practical support options available to them, whether within the organisation or externally, there is a better result.
4) The importance of voice and face to face communication: Customers are people and people generally prefer to communicate directly with other people, particularly when feeling vulnerable. Faceless, written communications can be off putting and raise anxiety levels. Many vulnerable customers have health issues which are not easy to communicate, so the importance of empathetic and skilled interactions cannot be underplayed. The ability to navigate through whatever circumstance the customer is facing, is significantly more straight forward where there is personal interaction.
Caring solutions produce better results
The lessons of the financial sector are already being applied, either consciously or unconsciously, by some suppliers in their treatment of vulnerable customers. Many suppliers engage with specialist outsourced businesses, such as The Sigma Group, to help them develop and deliver specific approaches to customer debt. It is not always via the traditional approach. Gary Gillburd, Chief Executive Officer at The Sigma Group, says ‘new ways of proactively approaching customers in difficulties, before the traditional Dunning process kicks in, can deliver materially improved results. A softer, more empathetic and personal approach can prevent the need for escalation and increased customer anxiety. Importantly, as highlighted above, a sympathetic approach can deliver better long-term outcomes and customer loyalty as well as resolving short term debt issues.’
In a world reeling from the effects of Covid, whether direct health impacts, emotional challenges or financial hardship, one of the most uplifting aspects of the UK’s response has been the power of shared humanity and caring. Whether ‘clap for carers’, volunteers producing masks and scrubs or local communities coming together, it feels like there has been a tangible shift in how people demonstrably care for other people. If nothing else, if this humane aspect of the pandemic can be successfully transferred through energy suppliers, customer and supplier outcomes, in relation to utility debt, should be improved.
This paper has been created in conjunction with The EnergyBridge. The EnergyBridge helps businesses, investors and local authorities navigate complexity, unlock value and reduce carbon in the UK energy market with a combination of deep market and operational expertise and experience. https://www.energybridge.co.uk/
The Sigma Financial Group Limited. Sigma is a customer management outsourcing business where people connect with people. We help many of the UK’s largest energy suppliers to deliver excellent customer service primarily in the areas of collections and debt recovery. https://www.sigmaconnected.com/.
Reach:Out is an initiative to help customers find a pathway to better manage their debts and improve affordability by signposting them towards free advice and support – with the programme accelerating due to the sharp economic downturn. To find out more visit www.reachoutassist.co.uk