‘Only a matter of time’ before loyalty penalty ban in energy

A number of industry experts have suggested a move by the FCA to end the so-called loyalty penalty in the motor and home insurance markets could be similarly applied to the energy sector.

This morning (28 May) the Financial Conduct Authority (FCA) announced a series of measures it was introducing, ensuring insurance customers are quoted prices that are no more than they would be offered as a new customer through the same channel.

The loyalty penalty has been a source of contention in the energy sector for a number of years and suppliers have been criticised for increasing the tariffs for existing customers when they renew their deal, while at the same time offering new customers much cheaper deals through price comparison websites.

Following the announcement, Utility Week spoke to a number of industry voices who suggested the energy retail market could adapt the FCA’s proposals. One described loyalty penalties as a kind of “legalised lying” that could ultimately damage the sector.

Clementine Cowton, director of external affairs at Octopus Energy, believes a similar move in the energy market would complement the existing energy price cap.

She said: “The government’s and Ofgem’s energy price cap is fantastic and should be extended, as it has driven competition and protected customers against the worst excesses of tease and squeeze – but it doesn’t stop that behaviour altogether.

“If the loyalty penalty is something we want to address, regulating pricing would be a very light touch way of doing it and as the FCA has shown, it should be achievable.

“We will wait to see the detail and how that works in practice but at least in principle it should be absolutely possible to tie a supplier’s standard variable tariff (SVT) to its new customer offers.”

Cowton added: “The government has slated alternative ideas on this. For example collective switching, which would be massively more interventionist and not actually address the behaviour that they say they want to address.

“If they wanted a light touch measure that can work in concert with the energy price cap, a measure like this would be a further consumer protection that would also help to further enhance competitive behaviour in the market.”

Simon Oscroft, founder and chief executive of disruptor brand So Energy, welcomed the FCA’s decision and said he believed it was only a matter of time before the energy sector followed suit, suggesting the current system erodes customer trust which will be key to achieving net zero.

He said: “I think it’s only a matter of time before it has to happen and the sooner it happens the better for both customers and the wider good of the sector and the overall energy landscape because trust is going to be really key, especially in net zero.

“People might say it’s a push to link exclusive tariffs to net zero but I think the trust element is really important here and it’s potentially really damaging for our sector that we have this legalised lying when you get renewal notifications or price increase notifications.”

Meanwhile Jo Causon, chief executive of the Institute of Customer Service, also warned about the effect dual pricing has on consumers.

She said: “Our own research shows that customer satisfaction and trust are hugely linked.

“Although switching is prevalent in the utility sector, we know that there is a range of things which break trust. This includes  charging different prices for the same service or product.

“I would recommend that organisations are transparent about their pricing policy and offer a range of services and products to meet customers’ needs and as far as possible should avoid dual pricing for new and existing customers.”