The role of regulator ratings in consumer protection

This guest editorial was written for the ANZSOG/National Regulators Community of practice monthly newsletter, highlighting new additions to the Regulation Policy and Practice collection on APO. The RP&P collection brings together a range of practical resources from national, local and state/territory governments, regulatory agencies and external institutions conducting monitoring, inquiries and reviews. You can receive this newsletter by  joining the ANZSOG/National Regulators Community of Practice (membership is free) or subscribe to the newsletter directly.

By Roxane Marcelle-Shaw, CEO of the Professional Standards Authority

Over the past decade, online reviews and ratings have transformed the way consumers choose products and services – think Tripadvisor, Uber and Airbnb. What can we learn from these developments? Can reviews and ratings by regulators be as influential in shaping consumer and provider behaviours? An upcoming National Regulators Community of Practice webinar on ‘Regulators as Raters’ will explore the use of ratings in regulatory contexts, and Roxane Marcelle-Shaw, CEO of the Professional Standards Authority, outlines why ratings are a useful tool for regulators and the public.

Consumer protection aims

Published and accessible ratings are a regulatory tool that can help to assure the quality of products and services in a market, drive providers to continuously improve against standards and empower consumers to make informed decisions. They are a regulatory means of protecting the rights of consumers as reflected in the United Nations Guidelines for Consumer Protection:

• The right to be informed – To be given facts needed to make an informed choice, and to be protected against dishonest or misleading advertising.
• The right to choose – To be able to select from a range of products and services, offered at competitive prices with an assurance of satisfactory quality.

These rights are also reflected in numerous laws, charters, codes and policies aimed at regulating a diversity of products and services across a variety of sectors. Governments recognise that consumers may have incomplete or unreliable information when navigating some markets. Regulatory ratings programs can work to address this asymmetry of information and thus play a vital role in consumer protection. This is the case particularly in markets where there are safety risks from poor quality products or services.

Three examples of ratings programs in action

In the aged care, food services and childhood education sectors, consumers need to know that the providers they may choose meet at least minimum standards of quality and safety. As well as supporting informed choices, a rigorous and public program of ratings against transparent criteria is a means of assuring consumers that standards are being met while also encouraging quality improvement.

Australian Children’s Education & Care

In the early 2000s there was a lack of publicly available information about the quality of children’s education and care services, which hindered the ability of families and carers to make informed choices about the services they used. In 2012, the National Quality Framework (NQF) introduced a new quality standard to improve education and care. The NQF is administered by the Australian Children’s Education & Care Quality Authority. With more than a decade in operation, it sets a national benchmark for early childhood education and care. Its objectives include to:

• promote continuous improvement in the provision of quality education and care services, and
• improve public knowledge, and access to information, about the quality of education and care services.

State and territory regulatory authorities assess services against seven quality areas of the National Quality Standards (NQS), which then receive one of the following ratings:

• Significant Improvement Required
• Working towards NQS
• Meeting NQS
• Exceeding NQS
• Excellent

Services must display their ratings, which are also published on Starting Blocks, providing trusted information for parents-to-be, new parents and carers, and families of toddlers and children.

Scores on Doors

In 2016 the NSW Food Authority initiated the non-compulsory Scores on Doors program designed to display the results of food safety inspections publicly. It lets consumers know how well local restaurants, takeaway shops, bakeries, pub bistros and cafes are complying with NSW hygiene and food safety requirements.

In partnership with local councils, the NSW Food Authority audits and inspects food businesses in NSW at least once a year. During the inspection, businesses are assessed against a food safety checklist and assigned a star rating reflecting their performance. Businesses then display a certificate and sticker, showing the rating they are awarded in a prominent position, usually the front window or door or inside.

Scores on Doors aims to enable consumers to make informed choices about where to eat or shop for food. The rating program promotes competition and encourages businesses to strive for the highest star rating through good hygiene and food safety practices. That helps reduce food safety risks and illness from food, so we can all enjoy a meal with greater confidence.

Aged care

More recently in 2021, the Royal Commission into Aged Care Quality and Safety recommended the development of a Star Ratings program based on measurable information:

“The [regulator] should … take carriage of the setting of quality indicators for all aged care services. Access to reliable and consistent quality indicator data will assist older people and their families to decide which providers deliver the best care services in the most dignified and respectful way. It will enable policymakers and regulators to benchmark performance against the quality indicators, inform their decisions about pricing services and regulating them, and provide the basis for a system of star ratings that will further assist older people and their families to make decisions about their care. Over time, poorer-performing services will be exposed and either be rejuvenated or closed down.”

The introduction of Star Ratings is a key milestone in the aged care reforms and reflects the rights and needs of consumers in the marketplace, including by providing:

• transparency about the quality of care in all aged care homes
• an easy way to compare the quality of aged care homes
• consistent quality measures to monitor, compare and improve aged care
• providers a way to continuously improve their Star Ratings and the quality of care for older Australians.

Star Ratings are awarded between 1 and 5 stars.

• 1 star – ‘significant improvement needed’
• 2 stars – ‘improvement needed’
• 3 stars – an ‘acceptable’ quality of care
• 4 stars – a ‘good’ quality of care
• 5 stars – an ‘excellent’ quality of care

As the national aged care regulator, the Aged Care Quality & Safety Commission is responsible for the Compliance Rating component of the Star Rating. The Compliance Rating is based on a number of government regulations and standards. These regulations and standards protect and enhance the safety, health, and wellbeing of people receiving aged care.

In December 2022, Star Ratings became available on the My Aged Care website. Consumers can search for aged care homes using the ‘Find a provider’ tool to see their Star Ratings.

Research on effectiveness of regulator ratings

The research [i] shows mixed results on the effectiveness of regulator rating programs in achieving their consumer protection aims. Public knowledge and consumer awareness of ratings information can be lower and work less well in practice than expected. Nevertheless, ratings program can influence positive changes in the attitudes and practices of providers and can add value to the regulator’s efforts to improve compliance. Further, there are some factors that emerge consistently in the research that, if fostered, can support and positively influence the success of ratings programs:

• promotion and accessibility of ratings
• collaboration and shared responsibility between regulators and providers
• leadership at all levels
• stakeholder involvement
• quality of regulatory relationships
• meaningful engagement with the assessment and rating program.

Conclusion

The three ratings programs used as examples here are at long, medium- and short-term stages of their development. They provide excellent examples for regulators considering how they might commence or improve their regulatory practice through the use of a ratings program. As detailed in 2008 by the Productivity Commission, and as true as ever today: “Though having various rights, consumers also bear considerable responsibility for making prudent and informed choices. – But consumers’ confidence and empowerment in markets can be weakened by poor information; behavioural or individual traits that limit good decision-making; and a limited individual capacity to affect consumer policy. – Accordingly, there are sound reasons for governments to promote consumer empowerment.” [ii]

Well designed, publicised and implemented regulatory ratings programs are an established means for doing so, with the added bonus of a significant uplift available in today’s environment as consumers have embraced the power of online reviews and ratings.

[i] For example:

Harrison, L. J., Brown, J., Andrews, R., Li, P., Hadley, F., Irvine, S., Davis, B., Barblett, L., Hatzigianni, M., Mulhearn, G., & Waniganayake, M. (2019). Quality Improvement Research Project: Phase 1 report. In L. Harrison, F. Hadley, S. Irvine, B. Davis, L. Barblett, M. Hatzigianni, G. Mulhearn, M. Waniganayake, R. Andrews, & P. Li (Eds.), Quality Improvement Research Project (pp. 11-12). Australian Children’s Education and Care Quality Authority (ACECQA)

Australian Children’s Education and Care Quality Authority (2022) The first decade of the NQF / Australian Children’s Education and Care Quality Authority, Sydney, NSW

Vegeris S. (2014) The Food Hygiene Rating Scheme and the Food Hygiene Information Scheme: Evaluation findings 2011-2014. Report for the Food Standards Agency, https://www.food.gov.uk/sites/default/files/fhrs-fhis-eval2011-14.pdf

Smithson, R., Richardson, E., Roberts, J., Walshe, K., Wenzel, L., Robertson, R., Boyd, A., Allen, T., & Proudlove, N. (2018). Impact of the Care Quality Commission on provider performance: Room for improvement? . King’s Fund https://www.kingsfund.org.uk/publications/impact-cqc-provider-performance

OECD (2019), “Understanding online consumer ratings and reviews”, OECD Digital Economy Papers, No. 289, OECD Publishing, Paris, https://doi.org/10.1787/eb018587-en

Kim T, Martin D (2021) What do consumers learn from regulator ratings? Evidence from restaurant hygiene quality disclosures. Journal of Economic Behavior & Organization 185: 234–249 https://www.sciencedirect.com/science/article/abs/pii/S0167268121000858

[ii] Review of Australia’s consumer policy framework, www.pc.gov.au/inquiries/completed/consumer-policy/report/consumer2.pdf