Extended warranties typically can add around 50% to the cost of
an electrical good. Most extended warranties are sold by the large
multiple electrical retailers. The OFT’s study found that:
The effectiveness of competition in the market appears to be
limited. Extended warranties are frequently purchased as an
afterthought. Consumers do not shop around for the best value
policy and the retailers' point of sale advantage makes it
difficult for alternative suppliers to enter the market.
Consumers are largely unaware that extended warranties can be
bought from other sources, such as manufacturers and insurers, as
well as electrical retailers.
The sales tactics of some retailers appear to exploit limited
consumer information. For example, there is evidence that sales
staff may emphasise the risk of product failure and the difficulty
and expense of obtaining independent repairs. OFT research found,
however, that consumers' satisfaction was at least as high with
repairs carried out by independent repairers as those carried out
under extended warranties.
Self regulation has not worked effectively. The British Retail
Consortium Code of Practice, introduced in 1995, has not been
followed widely and there is no comprehensive regulatory or
legislative framework to safeguard consumers.
The Competition Commission has 12 months to report to the
Secretary of State on whether, and in whose favour, a monopoly
exists in the sector. It must also consider any remedies to address
the problems.
