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.