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UTILITY WEEK | 16TH - 22ND OCTOBER 2015 | 13 Policy & Regulation Market view I n the coming months the Competition and Markets Authority (CMA) will be mulling over the final stages of its investi- gation into the energy market and, following its initial diagnosis, is giving more detailed thought to which interventions, or "rem- edies" might be necessary to address any issues it has identified. Indeed, it has recently announced an extension to the timeline to enable it to carry out a more thorough analysis. This is a unique opportunity to ensure we have a market that not only works for customers but is also seen and trusted to do so. But if the remedies focus only on the symptoms, rather than the underlying causes, it could be an opportunity missed. As the investigation has progressed, the focus has moved increasingly on to the sub- ject of customer engagement. Naturally, this has led to much scrutiny of levels of switch- ing in the industry as a proxy for engage- ment. Although it is a useful indicator for consideration, it can lead to an overly sim- plistic view of engagement because many customers who don't switch are still engaged. In that context, one of the most interest- ing pieces of work the CMA has undertaken is a customer engagement survey: a compre- hensive analysis of around 7,000 customers intended to really probe their behaviour. Specifically, it looks at what makes cus- tomers switch and what are the barriers (perceived or real) that reduce any appetite for switching. There are some very interest- ing findings within it, including that switch- ing levels compare well with other markets. Some 27 per cent of customers have switched energy supplier in the past three years, which is higher than many other markets, including the mobile phone market where 24 per cent of customers have switched. However, a closer look reveals more about the root causes for low switching lev- els. For example, many people assume that factors like age, income or vulnerability are in themselves key barriers to engaging with the market – but an in-depth study of the CMA's actual customer survey, undertaken by Frontier Economics on our behalf, reveals a number of other factors that appear to have a more direct bearing on a customer's pro- pensity to switch. The results indicate that the main drivers of customer switching are internet access, not being in receipt of Warm Home Discount (WHD) rebates, and supplier contact. By contrast, socio-economic and demographic characteristics have little identifiable effect. The only clear exception is household ten- ure type, which does appear to influ- ence propensity to switch. However, the evidence does not suggest that social housing renters are less likely to switch than private renters. The most prominent finding – statistically significant on all the switching measures we looked at – is that internet access is a key enabler of switching. Price comparison web- sites have revolutionised the way customers hunt for the best deals in the market and Frontier found that internet access is the biggest driver of engagement in the CMA survey. Controlling for socioeconomic and demographic characteristics, customers with no internet access are on average 12-15 percentage points less likely to have ever switched supplier, and 6-12 per- centage points less likely to have switched recently. This is substantially larger than the marginal effect of old age or low income, for example. Customers without internet access are also 6-12 percentage points less likely to be confident in their ability to switch and 17 percentage points less likely to switch in the next three years. Internet access is the only variable that has a statistically signifi- cant effect on all the measures of switching and confidence that we tested. To put this in context, the other variables that we tested included age, income, qualification and measures of vulnerability such as access to the priority service register. Meanwhile, another three influential variables came to the fore. Contact from sup- pliers increased customers' propensity to switch by 15 percentage points. Analysis of tenure type showed that customers in both social housing and private rental proper- ties were 11-16 percentage points less likely to switch than customers who owned their homes. Customers who receive WHD were 7-10 percentage points less likely to switch sup- plier, but were no less likely to feel confident about their ability to make the right choice. One reason could be concern of losing the WHD benefit, since suppliers with fewer than 250,000 customers are not obliged to provide it. We recognise that the energy sector has to take the lead when it comes to driving increased cus- tomer engagement, but behind the headlines the CMA research does point to the fact that some of the issues run a little deeper and these findings seem to be aligned with many of the experiences of respected organisations who work with vulnerable customers. While suppliers such as SSE can offer competitive broadband deals to customers, clearly govern- ment also has a central role to play in ensur- ing that internet connectivity extends to all. One of the many appealing parts of the new initiative from Citizens Advice to provide a personal switching service that includes face-to-face advice and would address an underlying cause: lack of internet access. Similarly, government could use its own policy levers to ensure that no private ten- ant is prevented from switching by a rental agreement. It could also make the WHD available across all suppliers. The refreshing thing about this analysis is that it helps point to possible remedies that would not only reflect the diagnosis, but also look to treat the underlying causes. With the coming months critical in defining the future of the energy market, we have to make sure that interventions are not made for their own sake but are well-targeted to areas where they will help make a real difference. Dr Richard Westoby, SSE Director of Retail Economics Why don't customers switch? As the CMA weighs up the evidence it has collected into the problems of the energy industry, Dr Richard Westoby urges it look at the root causes and not just the symptoms. "Internet access is a key enabler of switch- ing"