TPIs promoted ‘flawed’ and ‘unsustainable’ suppliers

Price comparison websites (PCWs) and auto-switching services have been accused by MPs of promoting energy suppliers with “flawed business models and unsustainable pricing”.

The Business, Energy and Industrial Strategy (BEIS) Committee’s report following its inquiry into the energy retail market was highly critical of third-party intermediaries (TPIs), citing evidence of cases where services failed to provide transparency about the products they were promoting.

Although these services have largely been brought to a halt as a result of the energy crisis, the report highlighted the widespread use of them by customers prior to September 2021.

Figures from Citizens Advice, for example, show 49% of domestic consumers that engaged in the market in 2019 said they did so through a PCW, and of these, 10% used an auto-scanning or auto-switching service.

The report further explained that auto-switching services began to proliferate from 2016 and by September 2021 the largest of these, Look After My Bills, reported more than half a million users.

Yet the report cited evidence from witnesses which argued that the combination of switching rates being seen as the key metric to determine the health of the market, inadequate controls over the business practices of retailers, and the energy regulator having “limited regulatory oversight” of TPIs led to these services “promoting unsustainable pricing and risky supplier business models”.

For example, EDF told the committee that “savvy, engaged consumers” were directed via PCWs to suppliers offering unsustainable prices to the detriment of “disengaged (and often vulnerable) consumers” who have been left to pay the costs of supplier failure through the mutualisation of Supplier of Last Resort (SoLR) and Renewables Obligation costs.

PCW Uswitch was singled out in the report after presenting Avro Energy with an award in 2019 following a survey of 17,000 energy customers. Avro, to date the biggest retailer to enter the SoLR process, was given the “Best Choice Value For Money” award by Uswitch.

“This was despite the fact that Avro had been reported to Ofgem by Citizens Advice for breaching licence conditions related to customer service; operating with heavy losses, inadequate hedging and capital reserves; relying on customer credit balances to finance its business; and, offering unsustainable pricing,” the report said.

Uswitch declined to comment on the matter when approached by Utility Week.

Transparency

The report additionally noted concerns raised by Citizens Advice about a lack of transparency with TPIs and said there were instances of customers being switched to unsuitable products where they lost out on protections, with no recourse.

The committee highlighted how auto-switching services do not always compare every supplier on the market, and that some may only compare those they earn commission from.

According to Citizens Advice, some of these services were only able to switch consumers to fewer than 15 out of the 70 suppliers that were available at the time. This, the report said, cost customers up to £70 more than if they had searched themselves.

Another charity, Age UK, raised concerns about instances where customer service was not an available switching criteria and that customers struggled to understand how much value they were getting out of switching when using automated services.

The committee noted that respondents to the inquiry disputed assertions they contributed to declining customer service standards, fuelled a “race to the bottom on price” or guided customers to deals based on commission.

Despite presenting Avro with the award in 2019, Uswitch told the committee it had checks in place prior to the energy crisis and that it chose not to work with suppliers if it lacked confidence in their ability to deliver “a good customer experience”.

For its part, MoneySuperMarket pointed to Ofgem’s voluntary Confidence Code scheme, to which it is accredited, which requires TPIs to provide consumers with reassurances about the quality of their services.

Regulation

Currently, TPIs are not directly regulated and operate outside the scope of the current retail energy market framework, which was developed when most customers would engage directly with their supplier.

The government is consulting on this and the report stated that BEIS department director Daniel Osgood has confirmed that the regulation of TPIs is being designed in tandem with the revised Energy Retail Market Strategy, which can be expected “before the next price cap setting”.

While both MoneySuperMarket and Look After My Bills agreed there should be consistent regulation of TPIs, Uswitch disagreed and said regulation “should be proportionate to potential customer detriment” and the best way to do this through “outcomes-based regulation focusing on customer experience rather than specific TPI practices or business models”.

The committee added that it is concerned TPIs “did not pay sufficient regard to understanding customers’ needs and ensuring customer service standards”.

As such, the committee called on the government to bring forward the regulation of TPIs and said this should, among other things, ensure companies encourage customers to switch based on standards of customer service as well as price.

These regulations should also ensure TPIs are transparent about their services and the energy retailers they work with, provide an explanation of remuneration and access to advice and redress for customers.

“The regulations need to be future-proofed for the significant role that third-party intermediaries are expected to play in the transition to net zero,” it added.