Jane Gray reports on a recent Utility Week/ WNS roundtable addressing customer debt, which has only worsened under the onslaught of the Covid pandemic.

The collection of outstanding payments from customers has long been a sensitive area of utilities’ operations. Despite the essential nature of the services provided by energy and water companies, these are often the bills customers are most likely to default on first when they encounter financial difficulty, and providers are endlessly stuck between a rock and a hard place as they tread a highly political line in chasing down what they are owed.

The arrival of Covid-19 has exacerbated this challenge to an unprecedented degree. The quasi-social care role that has increasingly been expected of energy and water providers in recent years has intensified as millions of consumers have met with job losses or sudden reductions in income. And the problem is only increasing as measures to curb the spread of the virus wear on into 2021.

In this context, Utility Week recently hosted a virtual roundtable discussion for collections and customer care representatives at energy and water companies to explore how they are handling this difficult landscape while also attempting to protect their organisations’ bottom lines.

The event, hosted in association with global customer service partner WNS, fostered a frank exchange of experiences as well as concerns about what the future holds in terms of pressures for collections departments. To begin with, the discussion centred heavily on the ways in which the pandemic has complicated the challenge of identifying customers with emerging financial difficulties and, critically, those in urgent need of support.

Universally, the group agreed that those customers experiencing the most extreme forms of financial stress and vulnerability are least likely to contact their utilities providers to explore options for managing their payments or usage more effectively, or to receive signposting to third parties who might be able to provide assistance.

Participants were generally stumped on how to tackle this problem in better ways than have consistently been tried in the past – through proactive messaging about the availability of social tariffs (in the case of water) and flexible payment options or through working with third parties who can act as trusted intermediaries.

There was a very real concern from participants that as the economic fallout of the pandemic hits home, more families and individuals will unnecessarily run themselves into severe financial distress or deprive themselves to an extreme degree of their essential services, simply because they are unaware that utilities may be able to help them, or afraid that contacting them will make their situation worse.

Getting smart about data

There was some discussion of the potential for using artificial intelligence and machine learning technologies to assist with identification of emerging financial problems for customers, however few participants were using this kind of technology as part of business as usual. Several did, however, say that they are increasingly linking in streams of external data from credit rating agencies and other relevant sources to gain a more complete appreciation of their customers’ circumstances.

There was also an admission that the sector as a whole could act in a more coordinated and strategic way when it comes to both data sharing and third party partnership to reduce the emotional burden on customers in financial distress. “We need to think about the trauma involved for customers in having these very difficult financial conversations multiple times with the different people they owe money to,” commented one water sector representative. “We need to get smarter here. Data protection is an issue, but can we get smarter at sharing information about financially vulnerable people?”

Moving beyond the emotive discussion of consumers in severe financial distress, the group agreed that there may be a larger if less extreme problem emerging for collections departments across the industry in the build up of arrears from “good customers” who moved to trim their outgoings during the first national lockdown and whose consumption is now regularly outstripping their payments.

“We’ve been tracking customer reducing their direct debits,” observed one energy sector participant. “We see a widening gap between the amount customers are requesting to pay and their usage… we’re building up a blob of customers that have been hidden because they haven’t cancelled their direct debit – and they’re good customers – but actually they are underpaying. There’s a big risk in that space.” Other attendees agreed with this experience and sentiment.

The prospect of widespread bill shocks for consumers in this scenario is clear – as is the likelihood of a related backlash from the public and consumer advocacy groups like Citizens Advice.

Regulatory schizophrenia

It’s an outlook participants viewed with a weary sense of inevitability, and without much hope that their need to collect payment for services rendered will be championed by their regulators. Multiple representatives from both the energy and water sectors expressed a view that Ofgem and Ofwat have exhibited “split personalities” when it comes to acknowledging the right of companies to pursue collections, and the reality that this challenge is exponentially increasing in scale, sensitivity and complexity in the current environment.

One energy sector representative said this approach is creating “moral hazard” in so much as “less honourable” players are gaining commercially while others who have moved to offer more fulsome and higher cost-to-serve support for consumers are disadvantaged – and that this incurs costs.

More broadly, participants called for acknowledgement from a policy perspective of the increasingly exposed problem that exists with the way we currently socialise the cost of supporting those who are unable to pay for their essential services. Several agreed that one helpful action would be to make changes to the benefits system so that utilities payments are deducted prior to funds landing with individuals.

Opinion

James Towne, senior vice president, energy and utilities, WNS

The year 2020 was without doubt one of the most challenging years for companies in the energy and water sectors as they had to cope with the complexity of Covid 19 on their operations and customers. Balancing the needs of private enterprises to deliver a profit with regulatory requirements and supporting vulnerable customers has always been a challenge. But 2020 put real strain on this balancing act and the tension continues to build.

The situation during the first national lockdown within the UK led to an unprecedented spike in customers seeking help or taking action to trim their outgoings, for example by cancelling or reducing direct debits. This spike appears to have settled, with direct debit cancellations at near normal levels, but there is genuine concern from all sectors that the real economic impact on people has yet to be felt and that a longer tail is going to be seen.

In this context, our discussion highlighted a growing worry about those customers in very severe financial distress who don’t approach their utilities to ask about options to delay or reduce their bill payments – despite the efforts of utilities to make these opportunities visible. While customers not making contact is frustrating and worrying in equal measure, it is not necessarily a surprise. Customers just don’t expect to ask for help from their energy or water supplier in the way they may approach their bank, for example.

The issue of supporting customers who cannot pay is not new but it has been exacerbated by coronavirus and the challenge is now certainly bigger than any one company, or indeed sector. There is a strong feeling there needs to be industry-wide innovation and coordination around how to handle the burden of non-payment better. Meanwhile, our participants were clear they would also welcome a refreshed and more thoughtful approach from regulators on how to understand and accommodate this growing problem area.

This need for innovation and fresh thinking is all the more urgent in light of the fight to combat climate change. How will we ensure no customer is left behind as we act to create our sustainable, net zero future?