Insurance: Got it covered

Fighting off commission-driven staff trying to sell extended warranties on top of products used to be part of the ritual with a visit to an electricals retailer.

Customers disliked such aggressive tactics and eventually the authorities agreed, introducing the Supply of Extended Warranties on Domestic

Electrical Goods Order in April 2005. The new legislation followed a Competition Commission inquiry, which had shown there was little information available on the reliability of electricals goods or likely repair costs, and no information about the extended warranty policies or alternative providers at the point of sale.

Although some doubt how well the Office of Fair Trading (OFT) is enforcing the Order, major retailers have changed their ways and the words “extended warranty” have been consigned to history for most. So what have retailers replaced them with, to provide value-adding service to customers while bolstering their bottom lines?

At DSGi some clever rebranding, coupled with the realisation that product support is increasingly required, has resulted in the relaunch of its support services last August under the Whatever Happens Club and Whatever Happens Premier Club, tying in with its Tech Guys service.

The policies include features such as unlimited repairs and a fast replacement if a product can’t be fixed, as well as added benefits such as loan products for Premier customers.

Tech Guys head of marketing Tim Fairs says the products developed from customer demand. “We listened to what customers were asking for and what was resonating was that all electricals retailers do a good job of having products available but the relationship and support wasn’t continuing after the customer got home. They were looking for a package that offered support during the life cycle of the product,” he says.

“It’s a service we are very excited about,” Fairs adds. Such relationship building not only ensures that the retailer still gets the margin benefits from such policies but also allows it to build a closer relationship with the customer.

DSGi declines to reveal numbers but confirms that “take-up has been very good”. The retailer also offers a three-year instant replacement policy covering products worth up to £150.

Similarly Argos offers a range of policies including Breakdown Cover for electricals products over £150, Replacement Cover for products under £150 and a range of furniture, jewellery, watch and mobile insurance packages.

Their existence is high profile. On the Argos website they are offered as an add-on product when the customer is first browsing. In store leaflets are placed near the tills, and the information is also displayed against each product in the catalogue. When the customer makes a purchase staff are prompted to offer customers policies.

At DSGi policies are also sold via point of sale, leaflets, staff and online. Some of the changes have been made to comply with the Order but retailers such as DSGi and Argos insist they have never used hard sell tactics. “This reputation couldn’t be further from the truth, and of course we train colleagues to comply with all relevant legislation,” says a DSGi spokesman.

But the Competition Commission wouldn’t have made its recommendations if it hadn’t felt the industry as a whole was letting down customers.

DSGi says its commission structure was dropped some time ago and that the reward scheme now in place encourages teamwork and impartial advice. The conversation with the customer today is very different. “It’s about a colleague saying: ‘Now that you have chosen that laptop, we would like to ensure you are supported during the life cycle of the product and would like to talk to you about the benefits of…’,” says Fairs.

The breakdown or warranty side of the policy then becomes almost an added bonus rather than the primary reason for the sale. “If colleagues get involved with that type of conversation it invariably gets a good reaction from the customer,” he adds.

But DSGi insists customers are also proactive. “Many customers want it and ask for it. Colleagues will raise it

as appropriate, and will not push the offer if customer is not interested,” says a spokesman.

Against the ‘hard sell’

Argos also denies it has ever been at fault. “Argos has never taken a hard sell approach to warranties. Our colleagues are automatically prompted to offer customers extended warranties at the point of purchase. However, they are actively discouraged from a hard sell approach and we operate in line with the recommendations of the

Competition Commission Order,” says a spokeswoman.

Electricals retailers talk about offering such policies for customer’s peace of mind but the fact remains they do drive huge revenues for retailers on low-margin products. Carmi Korine is managing director of Supercover Insurance - a business that offers gadget insurance for retailers. “Some retailers will make six figure sums out of it,” he says.

However, he agrees that retailers have to be careful about how they sell to customers. “The experience is historic but it’s still fresh in a lot of people’s memories,” he says.

Some say that insurance take-up has fallen but Korine says his business has seen the opposite trend. “We have seen a large increase in take-up but also a very large increase in claims, which is partly exaggerated, but also partly people never used to claim on their smaller items,” he says. He cites increases of about 90% on claims in the home.

However, not everyone believes retailers have changed for the better. “Although many retailers, especially the multiples, have updated their documentation to comply with the Order (including cancellation rights) there is little evidence at the point of sale of retailers reminding customers that extended warranties may be available elsewhere or that the damage might be covered by household insurance,” says Perran Jervis, partner and head of commercial for TLT Solicitors.

In October 2008 the OFT produced a report following a mystery shopper programme to monitor the effectiveness of the Order, which showed a mixed bag according to Jervis. It found the number of shoppers buying extended warranties at the point of sale had fallen from 82% in 2002 to 68% in 2008 and that 15% were shopping around for extended warranties compared with 4% in 2002.

However, it also showed that leaflets were not always prominently displayed and that five out of 13 leaflets examined had required information missing. In about 45% of the stores retailers had not provided required relevant information about extended warranties.

Training was also an issue with evidence that up to one third of sales staff failed to provide to consumers the correct information concerning consumer rights as specified in the Order.

“Although many retailers obviously amended their terms and conditions and republished their advertising materials I do not think that staff training in warranties, and consumer law generally, has been sufficient to give staff at the point of sale a comprehensive understanding of their customer’s rights and the regulatory environment. Retailers need to get buy-in from their staff in order to promote a proper understanding of the product and how to sell it,” says Jervis.

It is a complicated area and it seems although retailers such as Argos and DSGi have made commendable changes, others still need to do more.