CMA report into energy market says it is ripe for disruption and innovation

The investigation of the Competition and Markets Authority (CMA) into the energy market has once again highlighted that the market is ripe for disruption and innovation.

The regulator’s draft report, which was released following its investigation on 10thMarch 2016, shows that there is a long way to go before it works properly for consumers and business customers.

Dr. Nigel Evans, Chairman of Flipper Community, welcomed the findings.

“The CMA’s report confirms the problem that around 17 million households in the UK could be saving between £310 and £360 by switching energy but the fact is, they aren’t doing it,” he said. “This is primarily due to the process of switching being time consuming and far too complicated for consumers to navigate.”

In fact, it is estimated that around 85 per cent of UK energy customers are paying too much by not switching.

Transparency and trust

Evans argued that if the energy industry wants to build customer trust, then it needs to become more transparent. Most consumers believe they are gaining the best deal whenever they search and find an offer on a price comparison website, but this is not always the case.

Price comparison websites are paid a commission unbeknownst to their subscribers whenever they accept an offer, and quite often the best deals are hidden simply because the energy provider either does not offer the best commission or pay the most in order to advertise its offers.

Evans added: “The report points to considerable further liberalisation of the energy market, with customers being offered greater choice of products. This is good news.

“However, with more tariffs to plough through, and with price comparison sites being allowed to only offer consumers the deals that pay them commission, it makes the process of a finding the best energy deal even more challenging”

Call for change

Consumer watchdog Which?, which runs its own price comparison websites, recently told the Press Association that the cost to consumers of an uncompetitive market now stands at £1.7 billion, and called for all energy providers to “stop resisting change and to start working harder to restore trust in their industry”.

To make it more competitive many industry commentators want the CMA to ensure that vulnerable customers, such as the poorest off in society and the elderly are better looked after.

This is poignant because The Guardian reports that The Sun’s investigation into the market claims: “Age UK recommended a special rate from E.ON costing pensioners £1,049 a year – £245 more than its cheapest rate. It said the charity received about £41 from E.ON for every person it signed up to the deal, totalling £6 million a year.

“The Conservative MP Dan Poulter said there was a ‘moral obligation’ for the company, one of the big six energy suppliers, and the UK’s largest pensioner charity to recompense energy users because they appeared to have paid hundreds of pounds too much over the last year,” wrote Terry Macalister, energy editor at The Guardian.

Data release call

To open up the market and to make it more transparent organisations such as Which? and Citizens Advice want the CMA to ensure that customer data is released to rival suppliers to help people to switch more easily from the most expensive tariffs.

Flipper Community is taking a technological approach to achieving this goal by using machine intelligence to automatically switch its subscribers to the best tariffs. This takes the hassle out of switching, and it could further disrupt the market in a good way.

Need for innovation

Evans concluded: “The CMA’s report is welcome news – particularly as there is to be a lift on restrictions to the number of tariffs on offer to consumers as this will undoubtedly offer a range of new and innovative products that will better fit an individual household’s energy needs.”

In his opinion, to restore consumer trust price comparison sites and energy companies need to become more transparent about their commission model without restricting the market.

The CMA is now proposing to remove the restrictions that require price comparison sites to cover every deal on the market, but this means that there is no incentive for them to offer consumers a full view what is available.

So the energy market still needs to change to become more consumer-focused and transparent. This situation leaves it right for disruption by new entrants to the market.