Alabama Power recently launched a partnership with HomeServe, a company that’s been accused of deceptive marketing and other questionable business practices. In this new arrangement, HomeServe wants to sell what it calls an emergency home repair program to Alabama Power customers.
A flier promoting the program began hitting mailboxes in November. For about seven bucks a month, the personalized mailers offer an insurance-like plan that covers the repair of equipment that connects a home to Alabama Power’s electrical lines.
The fliers also include logos — placed prominently at the top — from both Alabama Power and HomeServe. Consumer advocates said such circulars are deceptive.
“This really is just junk mail,” said Doug Heller, director of insurance for the Consumer Federation of America. “But you see the utility’s name and logo on it and you think it must be real. It must be serious. And that’s why I consider this product really predatory.”
Misleading practices
A number of state regulators might agree with Heller. Between 2010 and 2015, HomeServe agreed to pay settlements in multiple states, after regulators argued the company did not adequately represent itself as being separate from the utilities it partnered with.
In 2014, HomeServe’s UK business was fined the equivalent of $51 million on charges that included misleading marketing materials and hard-selling tactics. According to Reuters, it was, at the time, the largest retail penalty imposed by the UK’s financial regulator.
Built-in commissions
HomeServe’s offering through Alabama Power covers the equipment that connects homes to the utility’s electrical lines. An illustration that came with the flier to Alabama Power customers shows the equipment that is the utility’s responsibility and that which is the homeowner’s, like the box that holds the electrical meter and the conduit where the electrical lines connect to the house.
For those who sign up and pay the monthly fee, HomeServe would cover the cost of repairs to the listed items, with an annual cap of $5,000. The company also provides a 24-hour repair hotline and the contractors who perform the repair.
What’s not highlighted in the mailer is that HomeServe pays Alabama Power a commission for each of the utility’s customers who sign up for the service. An Alabama Power spokesperson said the company does receive payments from HomeServe, but would only say it’s a “nominal commission.” A spokesperson for HomeServe also declined to give the actual commission Alabama Power receives.
“That’s not something that we typically reveal,” said Myles Meehan, senior vice president of public relations at HomeServe. “But I will say that it’s nominal. But, again, their interest in offering this is not so much for the money, but more for the service and the benefit that these plans offer the residents.”
No matter how nominal, the commissions do add up. At least they have for the Birmingham Water Works. HomeServe offers a repair program through the Water Works that covers exterior water and sewer lines. According to a Water Works spokesperson, the partnership has earned the utility roughly $5.8 million dollars since 2015.
Doug Heller, the consumer advocate, expressed misgivings about the commissions.
“I have a real concern that this comes very close with these kickbacks to being a tax,” he said.
He added the commissions should be investigated, because, he believes, the fees are essentially a price increase done surreptitiously.
A seal of approval
Regarding those previous settlements for deceptive business practices, Meehan said the agreements were voluntary on the part of HomeServe and were not an admission of guilt or wrongdoing. He also noted that HomeServe’s operations in the U.S. were under separate management in 2014 from the U.K. business, and that the two companies are now fully independent.
Meehan said HomeServe has made changes to its marketing materials, and it’s received accreditation from the Better Business Bureau.
Still, Heller said he remains concerned.
“Consumers are being scared into buying a product that they don’t really need,” he said.
Without that seal of approval from utilities like Alabama Power and Birmingham Water Works, Heller said many consumers would consider the pitch from HomeServe junk mail and simply ignore it.
Alabama Power is a program sponsor on WBHM, but our news and business departments operate independently.