Supplier failure now a key concern for consumers

There has been a significant increase in the number of energy customers who perceive the chance of their new supplier going bust as a main risk of switching, an Ofgem survey has found.

Polling more than 4,600 customers, the Consumer Survey 2020 explores switching and comparison behaviours, consumer confidence to source energy deals, what prompts engagement, perceptions of the switching process and the channels used to switch or compare energy tariffs.

The regulator highlighted that the 2020 survey moved from face-to-face to online which it warned means that results are not directly comparable with previous years.

To understand the impact this change had, a telephone-parallel run was also carried out to measure engagement.

In total 29 per cent of customers said they were worried about their new supplier going bust if they switch. The figure for the previous year was 10 per cent.

Concern about supplier failure was ranked fourth out of the top five perceived risks of switching, up one place from 2019. Engaged customers (32 per cent) were more concerned than those who were disengaged (24 per cent).

Money was the most important factor when it came to risks, with more customers concerned about not saving as much as they thought (54 per cent engaged and 50 per cent disengaged). Concern about being cut off after a switch was more of a worry for those who are disengaged (21 per cent) than those engaged (16 per cent).

While price comparison websites continue to be the most commonly known method of switching and comparing suppliers, awareness is growing of energy scanning services (53 per cent) and auto switching services (39 per cent).

However, reported sign up levels for auto switching services are fairly low (20 per cent). In total, just 5 per cent of consumers said they are signed up to an auto switching service.

Improved engagement

The report found that while the methodological shift coupled with the pandemic made the tracking of engagement difficult, there are signs that the levels of engagement are up.

In 2020 two thirds (65 per cent) said they had engaged in the energy market meaning they had compared and/or switched their supplier or tariff in the last 12 months – a significant increase from 2019 (49 per cent).

In terms of the types of people who are engaged, the patterns are very similar despite the methodology change.

A majority of those aged 35-64 (66 per cent) said they were engaged, compared to just 15 per cent of 16-34-year-olds and 19 per cent of those aged 65 and over. Engaged customers are more likely to be in social groups ABC1 and own their own homes.

Disengaged consumers are more likely to be pre-payment meter (PPM) customers or be in financial difficulty. However Ofgem found that experiencing a negative financial impact from Covid-19 might be driving some to engage.

Furthermore, people who switch are more likely to be repeat switchers than those switching for the first time.

A quarter (26 per cent) of those surveyed online said they were repeat switchers, compared to 5 per cent who said they switched for the first time. Similar numbers were reported in the telephone survey.

Supplier communication remains a key prompt for engagement, 44 per cent said they switched after receiving an end of fixed term tariff notice, 30 per cent said this was due to receiving a price increase notice and 11 per cent received a bill or statement from their retailer.

Trust

Fewer consumers trust energy companies compared to banks/ building societies, although levels of trust are comparable with those in insurance and internet/broadband companies.

In 2020 the number of those who trust suppliers dipped slightly compared to 2019, with 35 per cent saying they trusted suppliers generally compared to 45 per cent the year previously.

As in previous years customers are more likely to trust their supplier (44 per cent) to treat them fairly than to trust the sector overall (35 per cent), though fewer trust their supplier to charge them a fair price (38 per cent).

Vulnerable customers

Two fifths of households (39 per cent) are now classed as financially constrained, meaning they are on a pre-payment meter (PPM), in arrears on their energy bills and/or in receipt of means tested benefits. This is a slight increase from the 29 per cent reported in 2019.

However, despite doubling, the proportion saying they have fallen behind on energy bills remains very low at 8 per cent. Ofgem said this was likely a combination of methodological change and the impact of Covid on household finances

Significantly more financially constrained households report that the pandemic had a negative impact on their finances.

For example, 9 per cent of people financially constrained said either they or their partner had lost their job compared with 6 per cent who were not constrained.

Meanwhile 7 per cent said they or their partner had to take a pay cut, compared to 4 per cent of those who were not financially constrained.