Debt Conference report: Face up to the tyranny of debt

Customer service professionals gathered in Birmingham recently for Utility Week's Consumer Debt Conference, to compare their experiences of dealing with customer debt and share best practice, as Katey Pigden reports

Just as delegates took their seats for Utility Week’s 11th Consumer Debt conference in Birmingham last month, they were back up on their feet as the conference chair tried to gauge how long people had been involved in “consumer credit of any sort”.

Philip King, chief executive of the Chartered Institute of Credit Management, started by asking delegates to remain standing if they had been involved for five years or more.

Very few people sat down. Ten years or more? Still most were stood up. Twenty years or more? A fair few were still on their feet.

Finally, 30 years on more? One person remained standing.

The exercise showed just how important consumer debt is and that it is by no means a new problem for utility companies.

Forward-thinking credit, debt, billing, collections and customer service professionals in the electricity, gas and water sectors come together at the conference to share best practice, learn from mistakes and explore the technology being used by companies to tackle bad debt and risk management.

The regulators’ viewpoint

Representatives from the energy and water regulators joined Utility Week’s Lois Valley on stage to discuss whether it is realistic to improve customer service and resilience while reducing costs and making bills more affordable.

Meghna Tewari, head of retail market policy at Ofgem, suggested there has been some “great work” between industry, regulators and consumer bodies to support customers in need, but she stressed the importance of regulators holding “entities” to account.

Over the past few years, she has observed a “genuine effort” from energy companies to collaborate more and try to find “more contextual solutions to problems”.

Ofgem has been encouraging energy companies to develop a “culture of understanding customers better” – the regulator’s strategy is to move away from the “vulnerable” label.

For Ofwat, affordability is a major theme for PR19, and it said it is pleased to see “encouraging signs” the sector is rising to the challenge. Dan Walker-Nolan, principal of strategy and policy, pointed out that the Consumer Council for Water (CCWater) has reported that about three million households in England and Wales cannot afford their water charges. “Water is an essential service – you can’t choose not to use water and [domestic] customers can’t choose their supplier. Affordability has to be a priority in the sector,” he said.

Walker-Nolan said Ofwat has challenged companies to think “really carefully” about how they can cut bills and do things more efficiently. “Having been locked away in a dark room” studying the business plans for PR19, he was pleased to report there is a “good news story” around affordability and tackling consumer debt emerging from water companies’ proposals for 2020-25.

The energy sector provides a warning to water companies, he suggested. “You only have to look at the CMA [Competition and Markets Authority] review and things like the price cap to see that society, media and politicians are concerned that affordability hasn’t been front and centre with suppliers.”

He encouraged water professionals to engage with customers on things such as behaviour, water efficiency and metering to get the message across that customers will spend less if they use less.

And he said the water industry should look at payment flexibility to reduce bad debt, and that water companies should use data to better predict when customers are likely to get into debt.

He said great work is being done to make it easier for water and energy companies to share “non-financial vulnerability data on their customers”, but he said it would be good to see if “financial vulnerability data” could be shared in the same way.

The supplier obligation spiral

Speaking after the regulators, Chris Harris, head of regulation at Npower, told delegates that “regulation has pushed the industry hard” but by working together the sector is getting better at debt management.

He said: “I see big challenges in the credit landscape on the consumer and supplier side, big changes in the debt landscape, evolving technology in metering, the use of credit references and the near cessation of disconnection for non-payment.”

“Credit has many virtues, for example in enabling us to buy homes, reducing the cost of corporate equity that flows to consumer bills, and enabling continuity of consumption of essentials whilst incomes and expenditures fluctuate.

“However, debt can be tyrannous, unfair, inefficient and has been the cause of financial crises and recessions.”

Harris went on to highlight some of the signs that customers might be struggling to pay their bills. They include always paying on the red reminder letter, later and lesser payment than usual and cancellation of direct debit or resistance to setting a direct debit that will balance the account.

He said that while disconnection has “pretty much gone” from the sector with only a handful of cases, suppliers try to identify “self-disconnection” but “extraordinary care is needed” in doing so.

Referring to some of the costs suppliers face, including market share obligations such as the Warm Home Discount and the Renewables Obligation, he said that if companies do not pay there is a knock-on effect on other suppliers and their customers who “pick up the tab”.

“There is a danger of a debt spiral where the mutualisation costs drive a supplier to default.”

Have things improved?

John French, chief executive of The Consumer Council in Northern Ireland, said consumers want to trust suppliers and know they are getting value for money, but they also want fairness and a consistent approach.

And Claire Aynsley, head of regulatory compliance and standards at the Credit Services Association, said she has seen some “questionable practices” in the past 14 years – but also year-on-year improvement.

“Debt collection improvements have come about from hard work, change both organisationally and culturally, and good governance, but also from understanding customers and treating them fairly,” she said. Ross Betts, head of collections at Thames Water, highlighted that it uses a “customer segmentation” approach. It aims to identify the “won’t pay and the “can’t” pay customers. Thames is trying to “strike the right balance between consequence and care”. Matthew Lashbrook, head of debt and credit control at Green Network Energy, a relatively new supplier in the UK, argued that having “quality data doesn’t mean you actually know your customers”.

And it seems more utility companies will have to get better at building relationships with their customers, regulators and consumer bodies if they want to make further progress in tackling debt.

Views from the speakers:

Deven Ghelani, director, Policy in Practice
“If you don’t know what water poverty is, it becomes difficult to eradicate it.”

Matthew Lashbrook, head of debt and credit control, Green Network Energy
“Cash is still king. Cashflow is vital to every business.”

Chris Harris, head of regulation, Npower
“Suppliers are defaulting and because of the way the system works, that default is going to other suppliers.”

David Gregg, account executive, Verint
“Always have the customer in mind when you rebuild processes.”

Ross Betts, head of collections, Thames Water
“Data is better now but it’s not perfect.”

Brian Morgan, business development director, Rimilia
“Turn data into intelligence so you do something different.”

Claire Aynsley, head of regulatory compliance and standards, Credit Services Association
“I have seen some questionable practices in the last 14 years but also year-on-year improvement.”

Dan Walker-Nolan, principal of strategy and policy, Ofwat
“Affordability has to be a priority in the sector, that’s why we made it one of the four main themes of the PR19 price controls.”

The Debt Conference was produced in association with: