Navigating the Utility Debt Management Crisis with Data Analytics
1. Hayley Monks
Senior Vice President, Energy & Utilities
Navigating the
Utility Debt Crisis
with Data Analytics
2. The UK utilities sector is in tumult. The difficulties are diverse –
from the unpredictability of climate change and environmental
issues to the challenges stemming from regulatory mandates
and cyber threats. After reeling from the aftermath of COVID-19,
the energy market was further stressed by the Ukraine-Russia
conflict, leading to supply disruptions and an uptick in sourcing
costs. Now, with recessionary undertones and inflationary
pressures, utility service providers face the spectre of escalating
consumer bad debt.
The declining number of utilities – a stark decrease from 70 in
2018 to under 30 as of recent counts by Reuters – illustrates the
gravity of the situation.1
80 percent of energy companies fear
that the international competition for investments could
jeopardise their operations.2
Meanwhile, governmental caps on
energy prices not only erode the bottom lines but also deter
potential investors.
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1
Reuters
2
Utility Week-Marsh
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The current climate significantly influences both utility
providers and their consumers. As the cost of living
continues to climb, households are feeling the pinch.
The Office for Budget Responsibility's prediction of a
4.3 percent dip in real post-tax household income for
2022-23 further darkens the horizon, marking the
steepest decline since records began in 1956.
The consequence? Growing numbers of consumers
cannot afford their energy bills. As Debt Justice's
analysis reveals, the collective energy debt burdening
UK households reached a new peak, with debt owed for
over three months surging from GBP 1.086 Billion in Q1
The Consumer Conundrum:
Affordability versus Necessity
3
Ofgem
2018 to GBP 2.25 Billion in Q1 2023.3
This grim reality
forces many households, particularly those with young
children, to make the heart-wrenching choice between
sustenance and warmth.
Complicating matters, the accelerated smart meter
installations have introduced additional challenges,
such as faulty meters, incorrect billing and other related
issues. These, in turn, deepen consumer mistrust
towards utility providers.
So, how can utilities restore trust, enhance their collection
strategies and reduce debts in this turbulent landscape?
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Leveraging data insights allows utilities to maintain
consistent and empathetic customer engagement.
This proactive approach helps monitor customer
behaviour and prevent them from falling into debt. For
instance, by embracing flexible payment solutions
through open banking tools, operational costs can be
significantly reduced. Moreover, the invaluable
consumption data from smart meters equips
consumers to pay based on actual usage, thus steering
clear of the pitfalls associated with fixed payments and
recurrent direct debit reassessments.
Notably, in the UK, 57 percent of electricity and gas
meters are smart,4
offering detailed insights into
individual consumption patterns, right down to the
4
National Audit Office
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The answer lies in harnessing data for a deeper understanding and crafting a nuanced, empathetic approach to
debt collection.
Through rigorous analysis of existing data, enriched with supplementary sources and processed via advanced
algorithms, utilities can devise solid strategies. This data-driven approach can foster:
Harnessing Data Analytics to
Fortify Resilience
duration and type of appliance used (subject to
permissions and specific apps). When this granular data
is combined with other datasets, such as demographics
and neighbourhood characteristics, it offers profound
insights into population behaviours, facilitating a better
understanding of needs and consumption demands.
For example, households with young children, infants
or elderly residents should be promptly identified and
added to the Priority Services Register. This ensures
that their specific needs are prioritised during energy
disruptions. Such comprehensive data offers a golden
opportunity for utilities to collaboratively work with
households, helping them efficiently plan and manage
their energy budgets.
1. Empathetic Engagement and Proactive Debt Prevention
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An effective debt management strategy hinges on the
foundation of dependable data. It's not uncommon for
data to be riddled with inaccuracies or be incomplete
due to human errors. However, these issues can be
mitigated with a systematic approach that incorporates
automated validation.
During the first quarter of 2023, a notable shift
occurred: only 571,000 customers opted to switch their
energy suppliers.5
This represents a significant 75
percent decrease compared to the pre-COVID era and
the period before energy price caps were introduced.
Such a drastic decline in customer transitions has
presented companies with a golden opportunity to
delve deeper into understanding their customer base.
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GOV.UK
2. Optimised Data Management
It's imperative now, more than ever, to ensure that data
is not only owned but also diligently managed and
maintained, especially in anticipation of any potential
resurgence in switching trends.
Data from specialised external entities and third-party
sources can significantly bolster the integrity of a
company's dataset. It aids in verifying addresses and
ensures sustained data precision. By meticulously
cleansing and enriching this data, companies can craft
detailed customer personas, pinpoint vulnerable
segments and proactively offer services like heat and
energy-saving audits. Such a data-driven approach
paves the way for a more resonant and empathetic
engagement strategy.
6. Harnessing advanced analytics and sophisticated
modelling techniques, utilities can profoundly segment
their customer base. By integrating existing customer
data with various socio-economic indicators – including
government initiatives, credit bureaus and other publicly
accessible data sources – a richer, more insightful
perspective is formed. From this vantage point, utility
companies can craft tailored engagement strategies
that resonate more effectively with different customer
groups. Interestingly, much of this essential data – from
payment histories to customer care interactions and
feedback – already resides within the utility provider's
databases. Such information, when supplemented with
external data, becomes even more potent.
After successfully segmenting customers, the next
pivotal step is to engage them through their preferred
communication channels. For utilities to optimise these
channels, it's imperative to discern the preferences,
effectiveness and associated operational metrics – like
time, effort and cost-to-serve – of each customer
segment. Delving into historical customer contact data
and conducting comprehensive call analysis can help
ascertain volume per channel, instances of transfers,
deflections and reasons for contact. Such analysis
facilitates the creation of a 'transition matrix', providing
a lucid view of customer movement between
communication avenues.
Consider the tech-savvy demographic: They might find
phone calls disruptive, leaning towards more discreet
notifications like e-mails or text messages. Similarly, the
tone and content of messages should be calibrated
based on the customer's profile and payment
behaviour. For instance, a courteous reminder suffices
for a consistently punctual payer. Conversely, a more
assertive tone might be necessitated for someone with
a pattern of defaulting.
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3. Customer Segmentation for Improved Recovery
Consider this: If a household in default is a recipient of
benefits, it's a clear sign of financial vulnerability.
Recognising this, utility providers can offer assistance,
such as instituting a temporary payment freeze,
suggesting instalment-based bill payments or guiding
customers to supportive government initiatives. For
instance, organisations like the British Gas Trust work
extensively with individuals grappling with financial
challenges and energy debts. Conversely, by
assimilating external data regarding creditworthiness,
utility providers can discern between those genuinely
struggling and customers who possess the means but
choose not to pay.
4. Personalised Communication
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For utility companies, proficient debt collection isn't just essential for survival – it's a delicate art. A well-designed
data-centric approach to collections can both amplify delinquency management and foster stronger, more
empathetic customer relationships.
Building on a robust data foundation helps identify vulnerabilities, understand individual capacities to pay and
set repayment terms accordingly. The result? Enhanced customer satisfaction, improved resilience and
greater profitability.
In an era where energy access is often viewed as a fundamental right, utility providers must walk a fine line.
Bolstered by data insights and a people-first approach, they can craft a flexible, effective collections strategy that
serves both the bottom line and the public good.
A New Dawn in Debt Collection:
Balancing Profitability with
Empathy
Ready to transform your utility company’s approach to debt management with data-driven insights?
Talk to our experts.
