Headlines warning of the cost of living crisis have been ramping up in recent months. With the way things are heading, we haven’t seen the worst of it yet.

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The triple impact of skyrocketing energy costs, rising inflation and benefits cuts is hitting millions of UK households. With more individuals likely accruing debt, energy companies need to rethink their debt resolution models if they want to truly support their customers.

Inflation is the highest it’s been in almost 30 years, driven largely by supply chain disruptions and renewed demand for consumer goods as economies begin to reopen post-pandemic. Inflation currently stands at 5.4% (a huge rise from the pre-pandemic rate of 0.9%) and is expected to reach over 7% come April.

Meanwhile, pandemic-related government support, such as the £20 per week uplift to Universal Credit, has come to a close at a time when benefits would need to double in order to match the cost of living rises. National Insurance will also be increasing 1.25% come April.

A large portion of the cost of living crisis has been driven by the skyrocketing wholesale energy costs, triggering the 54% price cap increase in April. Around 18 million households are on standard tariffs and will see an average increase of £693 - from £1,277 to £1,971 per year.

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Typically poorer households will be hit even harder; around 4.5 million prepayment customers will see an average increase of £708 - from £1,309 to £2,017.

The effects are, and will continue to be, devastating.

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‍57% of people are either already struggling financially or expect to do so in the very near future. People are being forced to ‘heat or eat’; 1 million adults went a whole day without food last month. Recent research from Which? also found that around 2.5 million households missed or defaulted on at least one mortgage, rent, loan, credit card or bill in January 2022 - this is a significant increase from 1.7 million in December 2021.

On top of all this, the fuel poverty charity NEA has predicted that an extra 2 million people will be plunged into fuel poverty this April, taking the figure to a 6 million total.

That is 10% of the UK population being classed as fuel poor.

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What does this mean for the energy sector and their customers?

With households facing financial pressure on multiple fronts, more people will fall behind on energy payments amongst other bills, more people will cancel their direct debits and more people will seek help and support. 

This in turn presents numerous difficulties for energy firms, several of which they may never have faced before…

Many customers will never have been in debt or classed as ‘fuel poor’ before.

The rising cost of living will cause a lot of households - particularly middle-income households - to fall behind on payments, many of which may never have missed payments before. It follows that they may be unfamiliar with processes, technical language, what steps to take and what support is available. Firms must ensure that their processes for managing outstanding payments are simple and easy-to-use so that everyone can understand how their debt is being handled and which options are available to them. This is important not only for customer experience but also to ensure customer retention once the cost of living returns to normal levels in the future.

The changing customer demographic may also be made up of a higher proportion of younger customers. Research from think tank Demos has found that young people are being hit hardest by the pandemic and face the ‘greatest uphill battle’ to make ends meet, being faced with both high living costs and lower wages. This presents an even greater need for smooth digital experiences, as this digitally-savvy generation expects quality user experiences and user interfaces.

There will be increased pressure on customer support.

Energy companies will need to think about how they can operate at scale to deal with higher numbers of queries and complaints. There will also be high levels of inbound communications as customers have questions about their changing tariffs, payment plans and outstanding balances, a problem which is further compounded by staff shortages due to covid.

Companies will be judged by how they treat their most vulnerable customers.

This is particularly true in challenging times. As always, firms should act with compassion and transparency. When partnering with DCAs, energy firms should be looking for agencies which can offer their customers a positive experience and will in turn reflect well on their own company.

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Implementing a debt model that truly cares for customers

Rising numbers and changing demographics of people in debt will bring a need for more diverse debt resolution strategies that work at scale. Energy companies need to ensure that they are equipped with the tools to provide the right help with a high degree of care and empathy.

The approach we have taken at Ophelos is one that puts customer care at its heart while also allowing businesses to lower operational costs, increase recoveries, reduce regulatory risk and improve customer relationships.

1. We’re AI natives. We use hyper-smart machine learning technology to improve customer outcomes, detect vulnerable customers and drive customer engagement. Our digital platform allows large numbers of customers to view, handle and clear a debt themselves without ever having to speak to anyone unless they want to. This in turn frees up time for our customer support agents, allowing them to provide first-rate care to each individual without being chained to targets such as wrap-up times. Our omni-channel communication strategy is also digital-first, meaning that it’s much cheaper to operate than models which use call centres and letters.

2. We’re flexible. We offer flexible plans that we adapt to everybody’s needs. These include options to pay immediately, delay a payment, spread the cost over time or to request a bit of breathing space. In the case that customers are in debt with a company but still need to pay bills, we can combine the debt with the ongoing costs in one payment plan so that the customer only has one payment to think about.

3. We’re kind, and we perform better for it. People don’t want FINAL NOTICE letters. They want a company that will consider their personal situation and come up with a solution that works on their terms. Having debt can be incredibly stressful and the last thing companies want to do is add to that. We use a friendly tone of voice, high quality UX/UI and an approach that values customer outcome over profit. This isn’t just the right thing to do for customers; it’s good for business too. This outlook garners much higher engagement rates and subsequently higher liquidation.

4. We’re data-driven. We provide our clients with a real-time dashboard so they can see everything that’s going on. Our digital approach gives us lots of data to work with and analyse, so we can loop insights and analytics back to our clients and therefore improve business for them in both the short and long term.

John F. Kennedy is often quoted as saying that “the Chinese use two brush strokes to write the word ‘crisis’. One brush stroke stands for danger; the other for opportunity.” He may not have been correct linguistically (the second character in isolation means something more like ‘change point’) but the point still stands; both individuals and energy companies are facing huge challenges ahead.

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But if companies act now to put effective measures in place for their most vulnerable customers, they can use this critical period to drive innovation and change for the better.

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Interested in hearing more? Why not get a demo.