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Innovation and regulation – changes on the horizon for auto-switching - tmrw. test

Innovation and regulation – changes on the horizon for auto-switching

In this week’s Flexible and Responsive Energy Retail Markets consultation[1], the government and Ofgem stated that “the ability of the current arrangements to provide consistent and appropriate protections is already tested by the growing role of price comparison, auto-switching and brokering services”. As an unlicensed sector, the regulator has set out different options for increasing the oversight of intermediaries, including auto-switching platforms. 

Over the last two years, there has been an increasing number of intermediaries entering the market that differ from the traditional price comparison websites (PCWs), with 10 companies now offering an automated switching service. At present these are only in operation in the domestic market. The largest service, Look After My Bills has continued to be at the forefront of media attention, while advertising from GoCompare about its WeFlip platform has shown a concerted effort to grow its customer base.

These services have already seen investment, firstly through the acquisition of Flipper by Wessex Water in June 2017, which it said it would “help to drive the next phase of Flipper’s development”, and then a £120,000 investment for Look After My Bills after appearing on Dragons’ Den in August 2018. This was followed in April 2019 by Verv’s acquisition of Labrador Energy.

While two of these 10 services (Flipper and Switchd) are paid for by the consumer via a membership fee, most auto-switching companies are commission-based, operating in a similar way to PCWs. Today, the total number of customers subscribed to automated switching services is now in excess of 160,000 users. Still a relatively small part of the switching market, these services have grown in popularity over the last year, up from 40,000 in 2018.

Investment activity, growing use of auto-switching services by consumers, and indications from government and Ofgem that the current energy retail market structure is ripe for change clearly signals that the market for consumers outsourcing their purchase decisions has plenty of opportunity to grow.

However, it was during last summer that the media first reported some suppliers refusing to switch customers through auto-switching services, citing customer service problems, a failure to pass on important information to customers and data protection fears. Following escalation to Ofgem, the regulator said suppliers are obliged to accept transfers from auto-switchers. More recently, suppliers have noted an added complexity arising from change in property ownership, where the previous owner or tenant has signed up to an auto-switching platform, but not notified the company of their change of address, resulting in an unexpected switch for the new owner/ tenant. The aforementioned consultation is the vehicle through which these issues should be addressed.

And this month This is Money stated that some suppliers are no longer offering commission. This is not unusual, however, as there are numerous suppliers that do not pay commission to PCWs. Ultimately, the choice of channel for suppliers reflects their overall strategies, including the types of consumer the supplier is looking to acquire, their expectations around retention and cost of acquisition. This dynamic would be radically different if auto-switching services become prevalent.

As the regulator looks to develop new licences or authorisation for these companies, it will need to weigh up ensuring appropriate consumer protection against consumer convenience and not unduly dampen innovation. The lessons learnt from the emergence of PCWs will help here (such as codes of practice ruling how tariffs are ranked), and it will be in the interests of the auto-switching services to be seen to be the honest broker.

Of all involved, it is likely the supplier who faces the biggest challenges from auto-switch services. After years of regulatory intervention to make suppliers better engage with consumers, the market may have hit on a means for the consumer to easily and fully outsource the processes of this to somebody else – and dare we say on a day like this, do something more enjoyable like grab an ice-cream!

Our Domestic Energy Sales Channels report explores the commercial models, challenges and opportunities associated with different sales channels in the domestic market. For more information, please get in touch with Kate Hill on k.hill@cornwall-insight.com or 01603 542136

[1] Flexible and Responsive Energy Retail Markets. Published on 22nd July by BEIS and Ofgem

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