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Extended protections often misunderstood and bought mostly by specific segment of consumers

Nov 30, 2018 9:30 AM

A specific segment of consumers buy most of the extended product protection plans sold on major household durables, a just-released Consumers Council of Canada research report found.

The report, Consumers and Product Insurance Purchase Decisions, identifies that while type of product, its price and the cost of protection all affect the purchase decision, the minority of consumers who buy extended protection appear to have a distinct predilection to do so.

About 30 per cent of consumers have purchased extended protection on a major durable in the past three years, while more than half say they never purchase it.
"Consumers are frequently at an information disadvantage when they decide whether they need an extended warranty," said Consumers Council of Canada President Don Mercer. "Vendors have much better knowledge of the risk of product failure and repair costs than consumers.

"Also, consumers don’t do themselves any favour when they fail to read terms and conditions before they sign a contract, often presented at length and in small type that discourages reading."

Major appliances and home electronics (including phones) are the most frequently protected products. Consumers who purchased protection on one product were about three times more likely than other consumers to purchase protection on another product, the research found.

The results are based on a web panel survey conducted by Environics Research of 2,000 Canadians who had purchased a major household item in the past three years. 

The report also includes a review of legislation, current industry practices and interviews with industry participants. The study aimed to evaluate consumer attitudes and behaviours towards the suite of offerings -- protection programs, extended warranties, service plans -- designed to provide additional guarantees about products beyond the manufacturer’s standard warranty.  

Among the report’s other key findings: 

  • In general, extended protections are not well understood by consumers, who misunderstand terms and conditions, neglect to read the contracts and show little appreciation of the different regulatory structures and business models associated with different products.
  • Most major retailers use third-party service providers, who have adopted U.S. practices to serve Canadian consumers, and do not follow the extended service model operated by Sears Canada, which resulted in a loss of protection for consumers due to its bankruptcy.
  • Better informed consumers are generally less likely to purchase extended protections.
  • About one-quarter of claims for service are resolved unsatisfactorily or with substantial consumer inconvenience. 
  • Legislation and regulation concerning warranty and extended warranties is inconsistent among Canada’s provinces. In particular, it is not consistent province to province whether extended warranties are considered insurance .
  • The necessity of relying on courts for redress likely discourages some consumers from pursuing their legal rights to warranty and extended warranty claims.

The report makes numerous recommendations for public policy, consumers, merchants and third-party service providers.

"The report shows that Quebec consumers in general are more knowledgeable about extended protections," said Mercer. "That’s likely because Quebec law requires sellers to disclose information about basic warranties before offering additional warranties for sale. That’s one obvious way to better protect consumers."

Consumers Council of Canada has received funding from Innovation, Science and Economic Development Canada’s Contributions Program for Non-profit Consumer and Voluntary Organizations. The views expressed in this report are not necessarily those of Innovation, Science and Economic Development Canada or the Government of Canada. 


Research Announcements, Financial Services, Home Furnishing & Equipment, Insurance, Right-Information, Right-Choice, Right-Redress, Right-Education, Research  




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