Businesses must predict household vulnerability during cost-of-living crisis

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Developed in partnership with the VRS, predictive data science company Outra’s new Vulnerability Index allows landlords, water companies and more to identify customers at risk of becoming vulnerable.

Doing so has become an imperative with the Financial Conduct Authority’s new Consumer Duty coming into effect at the end of the month, which enhances consumer protections, especially for vulnerable individuals – meaning that businesses will need to take action to identify and support them.

As the VRS’ chief executive officer Helen Lord explains, this means that “if somebody is going through a difficult life event, for example, you can adapt the way you manage them, you adapt the way you collect debt, you put allowances in place and you speak to people differently. That’s never been done before.”

Helping companies to change the way they work with at-risk customers is key to the work of the VRS, a charitable organisation that allows people to add themselves to a single, central register of vulnerable individuals.

As Lord argues: “If someone is vulnerable, it’s going to be relevant to their bank, their mobile phone company, their utility providers, and the list goes on. So why put the onus on those individuals to have to repeatedly share that information? If they told their bank or their energy provider, it’s probably relevant to the other one. If they want that information shared, then let’s enable them to do that.”

For Lord, identifying vulnerable households means looking beyond purely financial indicators. “What we try and do is put some context around that financial difficulty,” she says. “We look at things like life events where somebody may be going through a relationship breakdown or a bereavement. We look at aspects of health, whether that’s physical or mental health, and we look at accessibility as well.”

The Vulnerability Index is just one example of Outra’s work using big data tools to predict household outcomes. Though admittedly not a fan of the term, Peter Jackson – who was Legal & General’s group director of data science and head of data at the pensions regulator before becoming chief data and technology officer at Outra – defines big data as “bringing together datasets that you wouldn’t normally imagine would work together well and then drawing the insights of the relationships between not just one or two datasets, but many datasets. We’re talking about billions of rows of data.”

According to Jackson, EPC ratings, the number of bedrooms and even whether a house is semi-detached or not were among the household-level indicators used by Outra to develop its Vulnerability Index.

“Then we have other small sociodemographic signals around the number of occupants, employment types, perhaps their social media preferences, those sorts of things,” he continues. “When you put all of those together, what you’re looking for is what we call ‘signal’ around what might tell us about vulnerability.”

In the context of a deepening cost-of-living crisis, interest rate rises and stubbornly high inflation, Jackson points to the importance of datasets like these in better targeting investment activity. According to Jackson, this could include making sure that “the NHS or local authorities target resources into the right areas”.

When asked what singles out the high risk from the wider 8.7 million households the index identifies as vulnerable, Lord acknowledges that the term is notoriously difficult to define. But as she explains: “When we did a survey at the end of last year, 10 percent of those people were suggesting that they were either at risk of homelessness, eviction or repossession. To me, that is high risk. They are worried about if they’re going to have a roof over their head and that is going to be more important than worrying about if they’re going to be paying their water, gas or electricity bill.”

With a general election on the horizon, Lord argues that a cross-departmental plan for dealing with vulnerability must be a government priority. “We can’t resolve things quickly enough if each regulator, each department and each organisation is pursuing only their own set of priorities. It needs to be broader than that,” she notes.

Looking ahead to what big data might warn us about next, Jackson predicts that the cost-of-living crisis may lead to more people withdrawing from their pension schemes, with potentially dire consequences for younger generations.

“If people can see that they’re struggling to pay their bills at the end of the month and by flipping out of their workplace pension, they can take home an extra £150 or £200 at the end of the month,” he explains. “I think it’s a risk.”