13th September 2011

Extended Warranty insurance- the next miss-selling scandal?

Regulation, despite its many failings, exists to protect consumers from the effects of bad advice, miss-selling of unsuitable products and sometimes even miss-buying.

IFAs and product providers have for years been used to the responsibilities of regulation and have seen, sadly, over the years various miss-selling scandals come to light that does the industry no favours.

The most recent example is PPI miss-selling by banks in particular, resulting in huge accounting provisions being made by those banks to settle claims made where a consumer has been sold a product that is just not suitable.

So what will the next miss-selling scandal be?

I think it may well be Extended Warranty insurance and although not being a product that sits on an IFAs  shelf, it is an insurance product and the firms that either offer or sell it are regulated.

The scale of the potential miss-selling could frankly be enormous based on my very recent experience.

Having moved into a new house a few weeks ago, my wife embarked on a very lengthy process of registering the warranties for the numerous appliances that came with the property. This included the normal array of ‘White Goods’ plus ovens, hob, microwaves, showers, waste disposal etc.

The warranty registration process was dealt with on this occasion by a company called Homeserve on behalf of the various appliance manufacturers involved. Registering the product was the easy part but what followed, without exception, was simply an attempt to hard sell extended warranty cover. The words ‘no thank you’ did not seem to be understood, in fact the sales pitch was in my wife’s words “pressurized and unpleasant” if you said “no”. Despite all their efforts I am pleased to say that my wife managed to get the warranties registered without succumbing to the sales pitches or getting wound up.

Fast-forward eight weeks and a call comes through appearing to be from a firm called Aqualisa. Upon further enquiry it became clear that the call was quite a coincidence as we were awaiting an engineer's visit to deal with a problem with an Aqualisa shower. But the call was in fact from Homeserve and the caller wished to speak with my wife about the fact she had not effected the extended warranty cover and what the consequences could be.

Most products we buy now have at least a one-year warranty, some two if they abide by EU law and in some cases five years - such as Aqualisa. So with a typical cost of £65 to extend a warranty on say an oven for five years, multiplied by a number of appliances - in our case fifteen, the cost soon gets quite hefty at £960.

I have no idea what the claims rate is on white goods, but I do know that this type of cover is also offered via many home contents insurance companies as well, such as electricity, gas and water companies and again at a cost.

So, in the heat of the sales pitch, not once was my wife asked if the equipment was covered elsewhere or if the monthly amount was affordable.

Homeserve is FSA regulated and no doubt a highly reputable company but I am very concerned that the sales processes employed seem to have no regard for cover that may exist elsewhere and is being paid for. In the event of a claim, both companies carrying the risk will not pay out for repair or replacement. In my wife’s case, it is being sold on a premise of ‘fear of the consequences” of breakdown in my view rather than the benefit in the frankly unlikely event of breakdown.

PPI was a scandal but given the number of products that offer extended warranties, I think the potential for miss-selling is even greater. The premiums may be lower than PPI but the number of policies is likely to be so much higher.

You can insure just about anything these days, but do you need to, or is it already covered and you do not know it? Controls need to be looked at by the FSA as a matter of some urgency before the ambulance chasers pick up the trail.

Regulation, FSA/FCA, Panacea Comment