Ending the prepaid energy premium is a boost for the vulnerable

The announcement in the Budget that the government is to end the energy sector’s ‘prepayment premium’ will help ease the pressure on the most vulnerable customers – as well as restore some of the public’s trust.

From the start of July, the government is set to pick up the additional costs of running prepaid meters from suppliers, which formerly had been passed onto the customers themselves, as part of as part of its Energy Price Guarantee.

Levelling the playing field for prepay

Energy suppliers have traditionally found that prepayment meters cost more to manage, compared to paying via direct debit, due to the additional administrative costs involved in supplying vouchers and collecting the payments. But with this change, these extras will no longer impact the customer’s purse – saving prepay users, who are typically low-income, an average of £45 per year.

This move will also bring a welcome reputational boost to the energy sector. The UK Institute of Customer Service’s most recent Index (UKCSI) found in February that customer satisfaction with the utilities sector had fallen to its lowest level in eight years, dropping 2.8% in 12 months.

In the last decade, prepay meters have often been used by companies as mechanism for managing customers’ debt. They can prevent customers from going even deeper into arrears by letting them pay upfront, sometimes with emergency credit from the supplier, but prepayment is usually more expensive than paying their bill by direct debit. However, Ofgem recently paused the installation of prepayment meters following complaints from customers who were forced into installing the devices by their provider.

Many consumers believe that energy companies should be doing more to offset the rising cost of living, especially since some suppliers saw huge rises in their profits last year, owing to the rising price of energy. So, this news is certainly a move in the right direction.

Steps toward better debt management

In the current unstable economy, it’s essential that utilities firms work better to prevent and manage customer debt. Those that reshape their collections processes and prioritise empathy can reap the benefits, which include increased customer loyalty and improved CX.

Utilities bear the full responsibility for collecting debt, and the manner in which they carry out recovery is subjected to political and regulatory constraints. Firms are under the constant glare of public judgement and regulatory pressure, so they need to evidence the fairness of their operations and maintain very high standards of professionalism in terms of debt collection.

Often, utilities do not have enough staff for the demand put on their teams responsible for debt collection. In fact, some firms don’t even have teams solely devoted to collections – they instead make this task another on the list of their regular call-centre staff, who are already under considerable pressure due to the deluge of customers experiencing difficulties. More than this, these colleagues frequently have not been trained or not trained adequately enough to handle vulnerable customers and those with complex needs – they lack the tools to assess a customer’s individual situation and be able to offer appropriate advice. 

In other cases, collections is spread over various departments within the organisation, which can result in a lack of joined-up thinking, inconsistent practices, and less-than-ideal results.

Firms that are dedicated to solving these challenges will be able to positively affect their CX, along with giving a boost to their reputation. One tactic is to apply predictive analytics, which can help to better identify the exact nature and circumstances of a customer’s difficulties. Utilities may also be tempted to invest in propensity-to-pay models, which use scoring to analyse customers who have fallen into arrears and can be an excellent way of better grasping the likelihood of the customer being able to pay – and contribute to a plan for helping them to do this.

Any utilities providers who don’t improve their collections’ activities are likely to incur additional costs that can directly lead to rate increases – fueling further the ever-perpetual cycle of unhappy customers with a seemingly untenable debt situation and consistently low satisfaction.

Now more than ever, energy providers must be focussing on transforming their customers’ experience, as only that can inspire the loyalty in the face of rising prices and the decarbonisation agenda. Passive energy consumers won’t be common in today’s market, so suppliers must be proactive in giving them the experiences that they deserve”.