Zero guarantee? Net Zero homes need better financial protections
The UK’s net zero commitments mean everyone will need to make changes to their homes. Households will have to move away from heating their homes with fossil fuels and place trust in new low carbon heat technologies such as heat pumps. By 2028, the Government is aiming for 600,000 heat pumps to be installed each year — an 11-fold increase on the number that were installed in 2021.
Our recent research showed households with low carbon heat technologies can enjoy significant benefits such as lower bills, greater comfort, and improved health and wellbeing. But if incorrectly installed, the impact on people's finances and wellbeing can be significant. To grow confidence in this emerging market, it’s vital that people have a positive experience when these technologies are installed, and are supported and protected in the event that something goes wrong.
We’re worried that some of the key financial products in this sector such as deposit protection insurance and insurance backed guarantees aren’t providing adequate protections for consumers, and could mean consumers are left out of pocket if their installer ceases to trade.
Our research has highlighted that these types of protections are a key ingredient to give consumers more confidence when purchasing net zero technologies. 87% of the homeowners we surveyed said stronger financial protections would make them feel more confident to install low carbon heat technologies in their homes.
What’s wrong with the current financial protections?
Many installers provide products such as insurance backed guarantees (IBGs) to their customers. IBGs are meant to ensure that any workmanship guarantee provided by the installer remains valid even in the event that the installer ceases to trade.
It’s not a legal requirement to offer IBGs in the ‘able-to-pay’ market but it is a requirement for many accredited installers and for work delivered under government funded energy efficiency schemes such as ECO 4 (which is targeted at households living in fuel poverty).
Like all insurance products, these guarantees are not a “blank cheque”, and only pay out under certain circumstances. But we’re concerned that the current range of IBGs isn’t providing adequate cover to consumers, due to some very restrictive caveats included within them. These caveats are often not made clear to consumers, who are then unable to successfully claim if something goes wrong.
Check the small print!
To illustrate why we’re concerned, here are 3 areas from an IBG on offer today that mean it is unlikely this product will provide adequate cover for the consumer if their installer goes bust:
1.Unrealistic timescales to report an issue
The policy requires the insurer to be notified within 30 days of the fault occurring. During this time, the consumer will have had to work out that their installer has ceased to trade, and may be referred to a consumer code or appliance manufacturer first, before being told they need to contact the insurance provider. IBGs can be issued for up to 25 years. If something goes wrong 10 years into the policy, it could well take consumers longer than 30 days to find all of the necessary paperwork and contact information. This issue will be compounded for people with additional literacy needs.
2. Need to exhaust ‘all other avenues’ before lodging a claim
Once the insurer has been notified, the policy requires the consumer to be able to demonstrate that all other routes to compensation have been exhausted — all within a 2 week period. It will be very difficult to prove claims against other insurance policies have been denied in such a short space of time.
3. Payout covers either the damage to property or the cost to replace the installation, whichever one is less
Even if the consumer is successful in making a claim, the compensation can be inadequate. This is because the policy only compensates either the cost of installing the product, or the cost to rectify the damage done by the fault/poor workmanship — whichever is less. This means that if you had something low-cost like loft insulation installed, but it caused significant damage to your property, you would only receive compensation up to the value of installing the loft insulation.
Case studies
Charlie* paid for solar panels to be installed. Work started in May 2022 and was not completed until February 2023. The trader was MCS registered and an IBG was provided as part of the product guarantee. In December 2023 she noticed the panels had started to fall off her house. When Charlie tried to contact the trader she discovered they had gone out of business. She has been unable to claim using the IBG as she has been told the contract has not been completed correctly so is invalid and she cannot understand why.
Mo* received energy efficiency improvements to their home using a government grant. Damage caused during the installation has caused mould and damp throughout their property. Mo has an insurance backed guarantee for 25 years. The installer has ceased to trade. It has been confirmed they can claim using the IBG but the terms means they will only receive £2100, despite the cost to fix the damage being estimated at over £50,000.
Improving protections for consumers
As it stands, IBGs are not fit for purpose, they don’t provide adequate financial protection — and mean that consumers could be left with a hefty bill through no fault of their own.
We want to make sure that all consumers can get things put right when they need to, and avoid trust in low carbon technologies being undermined during a critical stage of the net zero transition.
Whether it be through reviewing what caveats are appropriate to include within IBGs, or looking at alternative models of financial protections, something needs to be done. In the coming months we will be digging into this topic in more detail, and looking at what the best option is to ensure that consumers are protected during the transition to low carbon heat.
* A case study from our consumer service. Details have been anonymised.
