Ofwat is calling for the water companies to do more work to help vulnerable customers, including a shift in emphasis away from “vulnerable customers’ to customers in circumstances which make them vulnerable and may be transient.

The report shows that there has been a big increase in support for water customers who are potentially in circumstances that make them vulnerable, yet the sector still has a long way to go to meet customers’ needs. The research shows that company performance is mixed when it comes to offering effective and inclusive support.

According to Ofwat, unpaid bills are an increasing problem and currently cost every water customer around £21 on their bill.

Ofwat data reveals that the total level of revenue outstanding from customers’ unpaid bills has increased from £1.9 billion to £ 2.2 billion in the four years between 2010-11 and 2014-15 (2014-15 prices) - an increase of about 17% over four years.

During this period, while average water and sewerage bills in England and Wales have remained largely stable the amount accounted for by bad debt costs in the average bill of £385 has risen from £15 to around £21.

The regulator says the factors show that affordability is likely to be a growing social and political issue and that vulnerability is here to stay.

Commenting on the report Cathryn Ross, Ofwat Chief Executive, said:

“We are giving companies a clear message to focus on what their customers want rather than ticking regulatory boxes. There has been good progress, but there is still a long way to go. Many customers don’t get the help they need as they suffer in silence.”

The report includes the findings of independent research commissioned by Ofwat from London Economics, in association with Risk Solutions.

Introducing the Vulnerability focus report, Ofwat said it was intended to help the sector better identify and support customers in circumstances that make them vulnerable, together with providing practical guidance for the utility companies.

Ofwat is broadening its approach to the definition of customer vulnerability – which it says in practice has been based on particular types of customer (e.g. the elderly and people on low incomes)and now views as a “rather restrictive approach.”

Image:FCA paper Customer Vulnerability Feb 2015

Vulnerability relates to customer circumstances which may be transient

The regulator has moved away from using the concept of a ‘vulnerable customer’ and instead uses terms such as ‘customers in circumstances that make them vulnerable’. Ofwat considers that the change highlights the need to see vulnerability as relating to a set of circumstances, which may be transient, without labelling customers.

On this basis, Ofwat said the water companies will therefore need to develop a deeper understanding of the needs and requirements of different types of customers, including the more vulnerable and hard to reach.

Vulnerability may also be an issue for business customers in new retail market

Ofwat has also flagged up the possibility that vulnerability may also be an issue for some eligible business and third sector customers who will be able to choose their supplier of water and wastewater retail services from April 2017 onwards.

Although vulnerability issues are mainly considered in the context of residential customers, Ofwat has highlighted the fact that vulnerability may well be an issue for some business and third sector customers, especially among micro-businesses, which may share similar characteristics to residential customers and have a similar position in the market when the new retail market opens for business in 2017. The report says:

“Companies will need to consider these issues carefully, noting their importance for maintaining trust and confidence in the nascent retail market.”

 Ofwat sets out three principles of good service

Based on the research and other evidence gathered from the sector, the regulator has identified three principles of good service it says that water companies should consider when developing their approach to customer vulnerability:

• Companies should aspire to provide excellent service to all customers.
• Effective use of data will help companies to understand their customers and identify those in situations of vulnerability.
• Partnership working with other utilities and other third party organisations has been shown to be effective in identifying and assisting customers whose circumstances make them vulnerable.

Companies must move away from simplistic labels of vulnerability

In developing the principles,the report says Ofwat has based its thinking primarily on the following six key findings of the research.

1. Anybody can find themselves in circumstances that make them vulnerable and this situation may not be permanent.

Ofwat says there is a need for companies to move away from just applying simplistic labels of vulnerability, and to listen to their customers and understand their circumstances. This intelligence will then allow companies to intervene at an early stage and assist the ‘struggling silent’, acting before a customer becomes more deeply entrenched in a situation that leaves them vulnerable.

2. Water companies play a key role in supporting customers in circumstances that make them vulnerable.

The report says that water companies are in a strong position to identify and provide support to those customers who find themselves in situations of vulnerability – and it is also possible for companies to help their customers out of circumstances that make them vulnerable.

3. Partnership and adopting good practice is important, whether with other utilities or third party organisations.

4. Leadership and culture change.

“It is essential for leadership within a company to have an understanding of all its customers’ needs. This understanding should then be reflected in corporate strategies and embedded in the companies’ culture.

5. Effective horizon scanning and impact assessments.

The report says that companies need to be more agile and proactive in work that should be commonplace across the sector, including:

• horizon scanning;
• responding to eventual policy changes;
• conducting impact assessments; and
• being more responsive to customer needs.

6. Sharing of data, information and resources is helpful when supporting customers.

Better data sharing between water companies and other organisations to support customers in need of assistance would help to ensure that such customers received the appropriate assistance swiftly and seamlessly.

Customer Challenge Groups encouraged to use report as a base to challenge Business Plans

Summing up, Ofwat said:

“We expect companies to offer a word-class service to all customers and this report is very much a milestone for us in terms of setting expectations for the approaching retail market opening in April 2017, as well as our customer engagement work for PR19.”

“We will encourage Customer Challenge Groups to use this document as a base from which companies and business plans could be, and should be, challenged when considering both customer service excellence and their company’s approach to vulnerability.”

 The focus report builds on Ofwat’s 2014-15 affordability and debt report, which highlighted that unpaid water bills are an increasing problem in England and Wales, with companies needing to do more to prevent it and help customers struggling to afford their water bills.

It says the regulator also recognises that organisations’ understanding of customer vulnerability is changing, both within the water sector as well as across a range of customer-facing sectors such as retail energy and finance.

Practitioners' Pack to help water companies with practical examples and advice

Alongside the report, Ofwat has also published a practitioners’ pack which consolidates the research, advice and resources gained throughout the course of the research conducted for the vulnerability focus report.

The aim of the pack is to help companies to define their starting point when it comes to working with customers in circumstances that make them vulnerable; identify the key areas to focus on; provide examples of what good looks like when it comes to dealing with specific customer needs; and provide examples of practices that water companies have found useful in assisting their customers who have found themselves in circumstances that make them vulnerable.

Click here to download the Vulnerability focus report

Click here to download the Practitioners Pack