Major electrical retailers will offer more information and set up a comparison website in a bid to avoid the referral of the �1bn-a-year industry to the Competition Commission
The UK's major electrical retailers ? Dixons, Comet and Argos ? have pledged to overhaul the way they sell extended warranties in an attempt to avoid the �1bn-a-year warranty market being referred by the Competition Commission.
Extended warranties are insurance policies that cover the cost of repairs or replacement for a set number of years beyond the manufacturer's own warranty. They are typically sold at the point of sale on electrical items such as televisions, washing machines and computers, with most policies running for three or five years.
Rules controlling the sale of extended warranties were introduced in 2005 following a Competition Commission investigation. These included the requirement for retailers to tell customers that buying an extended warranty is optional, that they have up to 30 days to buy the extra cover, and there is a 45-day cooling-off period if they change their mind after doing so.
But the Office of Fair Trading (OFT) said in April 2011 that these measures were failing to reduce consumer detriment, and launched its own investigation into the market. The results show that only a quarter of consumers shop around for warranties, largely because retailers sell them at the same time as they sell the goods, and there is a lack of information for shoppers to make an informed decision on whether they offer value for money.
In response, Dixons, Comet and Argos will set up a price comparison website to make shopping around easier, as well as carry out regular independent mystery shopping exercises.
They will offer more accessible information via in-store leaflets (including details of alternative providers) and provide clear on-shelf information about the annual equivalent prices of pay-as-you-go warranties to help shoppers understand the longer-term costs of those products.
The OFT will consult on whether to accept the retailers' proposals or to press ahead with referring the market to the Competition Commission.
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.
"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."
The Financial Ombudsman Service (FOS) said it continued to see steady levels of complaints about warranties, with 684 new complaints received between April and December 2011, and about two-thirds of complaints being upheld in the consumer's favour.
It said a considerable proportion of the complaints were about furniture warranties, but there were also complaints relating to cars and electrical goods.
The FOS said the main themes among the complaints were mis-sold policies, misleading policy wording, insurers wrongly refusing to pay claims, and insurers not adequately putting things right to settle claims.
SquareTrade, a stand-alone provider of warranties, asked 1,000 consumers about the warranty market in November 2011 and found that two-thirds don't trust warranty companies to pay out, while 61% felt warranties are a waste of money and poor value.
Source: http://www.guardian.co.uk/money/2012/feb/07/retailers-warranties-shake-up-competition-commission
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