Retailers agree reforms to extended warranty salesOFT takes action following Which? investigation
07 February 2012
The Office of Fair Trading has today revealed the findings from its market study looking into extended warranties sold in conjunction with domestic electrical goods.
Main findings on extended warranties
The report from the OFT echoed the findings from previous Which? research that consumers are not getting the best value for money when they purchase extended warranties. When buying an extended warranty at the same time as electrical goods, the OFT report concluded, shoppers do not have enough relevant information to make an informed decision about whether the extended warranty is value for money.
Dixon, Comet and Argos, the largest providers of extended warranties, have offered legal undertakings to improve the way that the extended warranty market works.
The promised measures include improving the information these retailers provide to shoppers and the launch of a comparison website. The OFT will now consult on whether to accept the large retailer's undertakings, instead of referring the market to the Competition Commission (CC) for a detailed investigation.
Extended warranty recommendations
To address the concerns of the OFT, the main sellers of extended warranties of domestic electrical goods have agreed to:
- Establish, maintain and publicise an extended warranties comparison website, to make shopping around easier
- Provide more accessible information via in-store leaflets, including information on the availability of alternative providers
- Conduct regular independent mystery shopping exercises to help ensure shoppers get accurate information from sales staff – and report back to the OFT on the results
- Provide clear on-shelf information about the annual equivalent prices of pay-as-you-go (PAYG) warranties to help shoppers understand the longer term costs of those products. This currently affects Dixons, which is the only one of these three retailers to sell PAYG warranties.
Which? findings on extended warranties
Which? looked at the extended warranty market in our investigation published in January 2012. We found that extended warranties were often over-priced and seemed like a waste of money on some appliances.
In one instance, Which? found that a five-year extended warranty on a washing machine with a relatively small chance of needing repair in the first five years would cost £170, when the initial price of the appliance was only £260.
Similarly, a five-year extended warranty on a Sony Bravia KDL-40EX723 television purchased at Currys would set you back £269, or 34% of the set price of £799, with the television only having a 3% likelihood of needing repair in the first five years.
Time for action
Ann Pope, Director in the OFT's Goods and Consumer Group, said: 'Millions of extended warranties are sold in the UK each year and we remain concerned that, despite recent improvements, this market does not work as well as it could for consumers. We welcome the retailers’ initiative in offering undertakings and we now want to hear from consumers and others whether they think these will lead to improvements.
'If these undertakings are accepted by the OFT it would allow us to address the competition concerns more quickly and also reduce the burdens of further, detailed investigation.'
Richard Lloyd, executive director at Which?, said of the OFT report: 'Which? is pleased that the OFT agrees with us that extended warranties do not offer the best value for money. Our research highlights that many of the warranties on offer today are worse value than ever before and ignore the fact that appliance reliability has improved significantly.
'We want to see better products at reasonable prices and for people to feel clear about what they are buying. Providing more accessible information in-store will not, in itself, solve the problems with extended warranties and we look forward to seeing the results of the consultation period over the next few months.'