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review

Exploring regulatory approaches to consumer vulnerability

Evidence type: Review i

Context

Regulators increasingly recognise that essential services need to be inclusive of all customers, by being accessible and fairly priced, responding flexibly to common life events, and supporting people in difficult circumstances. Regulators also seek to address the role of markets in causing or exacerbating vulnerability, as a result of complex market structures, business practices or pricing, consumer-business power imbalances or the targeted exploitation of vulnerable customers.

The issue of vulnerable consumers is now on the radar of many regulators and industry participants in Australia and the UK, and they are developing vulnerability strategies to guide and enforce good conduct by business, and to set expectations about fair outcomes for consumers.

This report is a review of the literature in Australia and the UK covering four key areas: explaining the focus on vulnerable customers; understanding vulnerability; current regulatory arrangements; supporting vulnerable customers.

The report was commissioned by the Australian Energy Regulator (AER) and prepared by the Consumer Policy Research Centre (CPRC), an independent, not-for-profit consumer research organisation.

Key findings

  • Consumer vulnerability should be a priority: A vulnerability strategy should be integrated into the main domains of regulatory work, including policy and advocacy, compliance and enforcement, and community outreach, research and engagement.
  • Anyone can become vulnerable: Everyone is likely to experience vulnerable circumstances at some point in their lives, due to common, unavoidable and unpredictable life events. Some vulnerable circumstances are transient, but others will necessitate longer-term assistance.
  • Vulnerability can arise from personal circumstances or market features, or both: Market features, including complexity and poor product and service design, deliberate exploitation of people’s behavioural biases, information asymmetry and targeted exploitation of particular communities can all lead to vulnerability.
  • People’s lived experience of markets matters: Regulators and industry participants are best placed to address market problems when they seek to understand how people actually experience markets. There is significant potential for regulators to better use methodologies such as human-centred and inclusive design to understand people’s lived experiences.
  • Vulnerability can be tackled at multiple stages: It is efficient and effective for regulators, government, community organisations and industry to prioritise early and pre-emptive interventions, rather than waiting for problems to emerge or become more advanced.
  • Data has an important role to play: Data can be used to identify areas of pressing need, prioritise regulators’ vulnerability work, identify customers at risk, develop interventions and engagement with consumers experiencing vulnerability, and in better product and service design.

Recommendations

  • Develop a vulnerability strategy: Working with consumers, industry, community organisations and other regulators to develop a strategy which could outline the AER’s concept of consumer vulnerability, its plans for understanding and responding to vulnerability across different regulatory functions, and how these measures will be evaluated
  • Clarify the role of the regulator: Vulnerable customers aren’t just the responsibility of regulators and industry, but of government and civil society. The AER could clarify its role to provide certainty to stakeholders, and to help ensure structural issues are properly addressed by government.
  • Adopt a leading approach to understanding vulnerability in the energy sector: The AER could consult with consumers and draw on current thinking and research to prioritise developing principles for identifying vulnerability, a new approach to hardship, and an assessment of the impact of changes in the energy market.

Points to consider

  • Methodological strengths/weaknesses: There are no details given of the method for choosing or excluding papers for the report. However the sources used are all reputable, and current; there are more than 200 references given, primarily to papers published by UK or Australian government and regulatory bodies, or agencies such as Citizens Advice. Others come from academic institutions or are published in peer-reviewed journals.
  • Relevance: The report highlights that it is important due to the high proportion of Australians are likely to be in vulnerable circumstances, the fact that anyone can become vulnerable, and the fact that markets have contributed to vulnerability.
  • Generalisability/ transferability: The recommendations are specific to the Australian energy market, but the insights about consumer vulnerability are likely to be transferrable to other developed countries. The papers reviewed also covered other markets including banking and insurance, telecommunications and water so the findings are likely to be transferrable to vulnerability in these markets too. As many of the papers came from the UK, the report provides a valuable summary of definitions of vulnerability and of current regulatory structures in the UK.
    • Aimed at regulators and the energy industry in Australia, but useful to anyone working with vulnerable consumers such as government, support agencies, policy makers, policy implementers or educators.

Key info

Client group
Year of publication
2020
Country/Countries
United Kingdom, Australia
Contact information

Emma O’Neill, Consumer Policy Research Centre