Dixons, Comet and Argos agree extended warranty shakeup

Three of the biggest electrical retailers in the UK are to overhaul the £1 billion-a-year market for extended warranties to avoid a major competition inquiry, it has been announced.

Dixons, Comet and Argos, the largest providers of such warranties, are to establish a price comparison website and conduct regular independent mystery shopper exercises as part of efforts to prevent consumers from being ripped off.

The retailers agreed the undertakings with the Office of Fair Trading (OFT) in the hope of staving off the prospect of a much lengthier probe by the Competition Commission.

However, they will face a consultation on the implementation of the measures, after which the OFT will asses whether a referral is necessary.

This follows an OFT market study on extended warranties, which highlighted competition concerns in the £1bn-per-year market that "could mean consumers are not getting the best value for money".

The study found that competition on extended warranties remains "limited" at the point of sale, as retailers can sell their agreements at the same time as electrical goods.

This means that only around a quarter of consumers shop around for warranties, which is low compared to other insurance products.

It was further noted that Pay As You Go (PAYG) warranties, involving shoppers paying for a rolling monthly contract, can prove expensive if held for lengthy periods.

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Dixons, Comet and Argos have now agreed to "establish, maintain and publicise an extended warranties comparison website to make shopping around easier".

The retailers will also provide more accessible information via in-store leaflets on the warranties offered by alternative providers, as well as conduct regular mystery shopper exercises and report the results back to the OFT.

Equivalent information about PAYG warranties must be provided to help shoppers "understand the longer term costs of those products". But this currently just affects Dixons, which is the only one of the three retailers to offer PAYG warranties.

"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," said Ann Pope, the director in the OFT's Goods and Consumer Group,

"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."

The OFT said that it expects to reach a final decision on whether to accept the undertakings later in the spring.

In the mean time, the watchdog's Know Your Consumer Rights campaign has produced a short film informing shoppers of their statutory rights when buying electrical goods at retail outlets.