Consumer vulnerability – the emerging trends

The AER this week launched a report looking at the issue of consumer vulnerability. The report surveyed approaches from regulators in both Australia and the UK and across multiple industries to determining who is vulnerable and what regulatory interventions are necessary to protect them from adverse outcomes.

Consumer vulnerability defies easy definition, but can encompass financial distress, disability, mental and physical illness, low literacy and numeracy, a non-English speaking background, extreme youth or age, a disadvantaged minority background, and family violence. Some definitions are even less specific about the potential cause of vulnerability and instead focus on the risk of detriment in the market(s) that the regulator oversees. It follows that all of us could experience vulnerability or have the potential to experience it at some point in our lives. This reflects an increasing sophistication and focus on the issue of consumer vulnerability and the search for remedies amongst regulatory agencies.

This in turn is likely to drive an underlying shift (already taking place in some cases) away from a pro-competitive regulatory philosophy that could be characterised as relying on market discipline to deliver efficient prices and appropriate levels of customer services for most customers, with some safeguards at the margins for highly targeted customer groups or customer circumstances. Rather the emerging approach will be a pro-protective one where the baseline customer is one who is could be experiencing vulnerability, and service standards including product design, communication methods and content will be judged against this baseline. Businesses who characterise the regulations that follow from this approach as “regulatory burden” or “stifling competition”  will increasingly find their complaints fall on deaf ears and instead be encouraged to go beyond the regulatory minimum in looking for ways to meet their customers’ needs in all circumstances.

The regulators that have been developing this approach for many years, such as Ofgem in the UK, have turned their approach to vulnerability into an ongoing process rather than a periodic response to a specific issue. Ofgem develops a Consumer Vulnerability Strategy every five years, which outlines a range of goals, and actions to achieve those goals including ongoing monitoring of energy companies and customer outcomes. A similar approach may be imminent here in Australia, as the report concludes that “the time is ripe for the AER to undertake in-depth and sustained consumer vulnerability work”.