Shake-up for warranties market

The extended warranties market faces a big shake-up following a report by the Competition Commission.

It brands the market "unfair", saying it gives a huge advantage to the retailers selling the policies.

The Trade and Industry Secretary, Patricia Hewitt, is backing the commission's calls for big changes to the way warranties on household electrical products are sold.

Shoppers should be given more information about warranties before they buy and greater rights to cancel afterwards.

Cheaper

There's been growing concern that sales staff in stores are putting pressure on customers to take out the warranties.

Juliet: Pressured

Working Lunch viewer Juliet Smith bought a new washing machine from Comet in Swindon - but didn't want a warranty.

"Once you've said no, no should be enough but they go on and on," she says.

And people aren't always made aware that they can buy them elsewhere, often much cheaper.

The warranties market is worth £800m a year, and the big electrical stores take a large chunk of that.

Sir Derek Morris, chair of the Competition Commission, welcomed Patricia Hewitt's backing for his proposals.

Unhappy

"They will make it clear to consumers that if they want an extended warranty they don't have to buy it at the point of sale," he says.

Sir Derek Morris receives the Working Lunch dossier

"This will provide opportunities for alternative suppliers of extended warranties to get into this market."

As part of the commission's inquiry, Working Lunch handed over a dossier of complaints from viewers, including some from shop assistants unhappy at the pressure sales techniques.

So how will the proposals affect consumers?

The price of the warranty should be displayed alongside the price of the product and also made clear in advertising.

There will be a 45 day cooling-off period.

It will be made clear if warranties are backed by insurance - when the Powerhouse chain closed down, people found their warranties were worthless.

It's hoped the ultimate result will now be better value.

"We found that the price of warranties was excessive," says Sir Derek.

"We estimate that had this market been fully competitive, extended warranties would have been, on average, up to a third cheaper."

But it pays to do some homework before rushing into a warranty - whatever the price.

For instance, there's only a 3% chance your DVD player will go wrong in the first three years.

A washer dryer, on the other hand, has a 25% chance of needing repairs within five years.

The report is the culmination of nearly a decade of investigations.

The Office of Fair Trading first tackled the issue back in 1994.

Voluntary

A voluntary code was set up, but after two further OFT probes, the matter was referred to the Competition Commission in July 2002.

John Clare, chief executive of Dixons, was disappointed by the findings.

"We disagree with the conclusion that the market for extended warranties is unfair, uncompetitive or that there is excessive pricing," he said.

But the Consumers' Association welcomed the outcome and Duncan McClure Fisher, of independent specialist Warranty Direct, said: "The door to a more competitive and consumer-friendly market for extended warranties has finally been opened."