Tackling consumer vulnerability

Today we have published our new strategy and work programme that aims to improve the way the energy industry identifies and tackles consumer vulnerability.

Our new approach recognises that vulnerability can be complex and may arise for many different reasons. Vulnerability is more than a list of personal characteristics, as both personal circumstances and factors in the market can affect consumer vulnerability.

What is consumer vulnerability?

Our definition of vulnerability is when a consumer’s personal circumstances and characteristics combine with aspects of the market to create situations where he or she is:

• Significantly less able than a typical consumer to protect or represent his or her interests in the energy market; and/or
• Significantly more likely than a typical consumer to suffer detriment, or that detriment is likely to be more substantial

What is our plan?

Our first work plan sets out the steps we will take to address the issue of consumer vulnerability. We have identified four key areas where intend to make progress:

1. Choice and access - Consumers in vulnerable situations often have less choice and are less able to access the best deals in the market. They may be limited by their circumstances, for example, not having internet access or a bank account, having a poor credit rating or being in debt.
2. Managing bills - The cost of living is increasing for many households in Britain, and due to the economic situation, incomes have remained static for many people or have fallen in recent years, meaning that many consumers are experiencing cuts in their disposable household income. Rising energy prices are a component of the increasing cost of living. We have particular concern regarding consumers in debt. Consumers who are in debt to their energy supplier are often in debt in other areas too. We monitor this area closely through our Social Obligations Reporting, requiring suppliers to provide statistical information on levels of debt, disconnection rates and more.
3. Energy use - Research by the Centre for Sustainable Energy24 shows that low income consumers who rely on electric heating are likely to bear a greater burden from government energy policy. It finds that consumers with electric heating – 11 per cent of all consumers – are most affected by Government policies, yet tend to have lower incomes than those with other forms of heating.
4. Our expectations of the companies - We expect all companies operating in the energy market to think broadly about the potential for their business to create risk factors that may cause or exacerbate vulnerability, whether this is directly apparent from their interactions with individual consumers, or less direct such as in the design of products, the mediums through which they communicate or the knowledge and skill of their staff. We expect companies to provide an inclusive, responsive and effective level of service recognising that consumers have different needs, abilities and personal circumstances that can give rise to detriment when interacting with a market.

Sarah Harrison, Senior Partner, Sustainable Development, said:

“Ofgem‟s actions to make the energy market work for consumers bite hardest when it comes to protecting the most vulnerable in society. Today we are putting in place a wide-ranging new strategy, with a practical and focused way of identifying and tackling vulnerability and an action plan to back this up.

“A key point of our strategy is that it isn‟t just consumers‟ characteristics that make them vulnerable, but rather how these interact with the market. We want to drill down to the essence of what puts people in vulnerable situations, using this understanding to guide our own actions and our expectations of the companies we regulate. We plan to do this in partnership with a wide range of consumer and community based organisations, as well as with energy suppliers and distribution companies.”

Mike O’Connor, Chief Executive of Consumer Futures, said:

“We welcome this valuable strategy. We look forward to working closely with Ofgem on protecting people in vulnerable situations and building on joint work already done by our organisations.

“Our recent report with the Joseph Rowntree Foundation illustrates how the market can make people on lower incomes pay more for essential goods and services. If essential markets do not deliver accessible and affordable services to consumers on low incomes, then regulators, working with governments, need to intervene to make markets fairer. Ofgem's strategy is a good basis for taking a focused approach to this stubborn issue.”