Using Ofgem’s behavioural insights research to improve your collections communications

30 March 2023

Behavioural insights is a topic that’s being discussed a lot within collections at the moment; even the Financial Conduct Authority is working with a firm to increase intelligibility of regulatory text within financial products and services.

As part of our ongoing industry research, we came across an Ofgem report entitled ‘Debt communications messaging: Evidence from customer and behavioural insights’, the purpose of which was to provide empirical evidence on what constitutes ‘good’ practice for energy supplier debt communications.

So, how did Ofgem put together this report (following a two-phased research project), and what were the findings?

How did the research work?

The two phases of the research were:

Qualitative - 30 one-to-one interviews with GB domestic energy customers, who had a range of debt experiences.
Online behavioural experiment - conducted with over 1,500 domestic energy customers, designed to quantify and understand their intentions to act, their attitudinal and emotional reaction, and their comprehension of key information.

Ofgem trialled four different approaches to the tone and content of the letters that were issued (a similar approach to the one taken by Anglian Water in its ‘Applying Behavioural Science to Bad Debt Collection’ report in 2018):

Harsh 1 – focused on immediate repayment and outlined consequences of non-response. This was also the control letter for the purposes of the pilot.
Harsh 2 – as above but this time including alternative solutions.
Friendly 1 – less emotive, setting out routes to support and resolution, plus the consequences of non-response.
Friendly 2 – much more empathetic, focused heavily on debt solutions and independent support, with specific mention of the pandemic.

Other factors in the letters, all linked to the Behavioural Insights Team’s Mindspace Framework, were changes to the placement of information, and the use of outline boxes to increase the salience of primary focus to either supportive or punitive messaging.

What were the findings?

Tone

The overarching finding was that the use of a harsh tone and a focus on immediate repayment may actually reduce the likelihood of a customer making contact, as compared to a friendlier tone and/or a solutions-based focus.

Trust and brand perception

After receiving the letters, customers were asked to what extent they agreed with the following four statements:

‘The supplier will treat me fairly if I contact them’
‘The supplier understands that times are difficult’
‘I won’t be pressured into paying what I can’t afford’
‘The supplier will work with me to find an outcome that is right for me’

Maybe unsurprisingly, the scores were lowest for the Harsh 1 version of the letter and highest for the Friendly 1 and 2 versions of the letter.

Length

The results also showed that when communicating over multiple pages, the second page is less likely to be read and even when it is read, it is less likely to be properly understood.

All of this information is useful, but it needs to then be translated into practical, real-world actions.

How can you use this research to improve your communications?

The report recommended that firms take the following actions:

Communicate in empathetic language, for example:
- Steer clear of the presumption that paying a bill is ‘not top priority’.
- Use terms to evoke cooperation such as ‘work together’, ‘affordable’ and ‘finding a solution’.
- Avoid the threat of ‘legal proceedings and potential negative impact on credit ratings’ in initial contact with customer if not necessary.
Focus on alternative debt solutions rather than immediate repayment.
Make key information visually more prominent (e.g., by including it in the first page of a multi-page communication)
Acknowledge that the cause of debt could be outside of the customer’s control (e.g., in general terms, as well as in relation to specific circumstances).

Hopefully these pointers are useful in helping you to rework your customer communications, but this is just the beginning when it comes to using behavioural insights to improve your debt collections processes and treatment paths.

Applying these principles to enforcement

The great thing about behavioural insights is that they are based on people and we can learn a lot about people through the intelligent application of data science and analytics before we even start to communicate with them.

Behavioural insights are an integral part of Just’s operating model, designed specifically to achieve engagement with customer at an early stage. From an enforcement perspective, this is important because:

We want to maximise our clients’ chances of getting paid and protect their brand.
We only want our suppliers to escalate to a visit when the data indicates that payment is possible or there is no other alternative.
We want customers to have the best chance of repaying the principal debt, which means using our expertise to deal with as many cases at the compliance stage as possible, therefore avoiding unnecessary fees.

Harnessing the power of data is one thing, but combining it with human nature takes it to a whole new level.

At Just, we have the expertise to help embed behavioural insights into your customer journey to maximise recoveries, minimise costs and achieve good customer outcomes.

If you’d like to speak to me about anything I’ve raised in this blog, I’d love to hear from you and please feel free to contact me directly.

Steve Coppard
Group Director of Debt Policy & Strategy
Arum & Just

About the author

Steve has been in the debt industry since 2001. He spent most of his career working in government, where he started on the phones collecting VAT debt and ended up being responsible for prompting improvements to the management of over £40bn of public sector debt. He joined Just and Arum in May 2022 where he continues to shape the biggest conversations in the debt market, having been recognised as an Influencer on the Credit 500 list for a number of years. Credit Management Magazine recently called him one of the industry’s genuine thought leaders.