16th April 2015

When warranties might not be worth it

Consumers need to beware of the hard sell and shop around for the best protection, writes Mark Channing.

SHOPPERS are wasting money buying unnecessary and expensive product warranties because they’re in the dark about their consumer rights, a new report has found.

Warranties are a form of insurance offered by retailers, or third parties, to consumers to cover the cost of repairing or replacing goods.

Shops commonly try to cross-sellyouawarrantywhen buying white goods or electrical items.

According to a new report published by the European Consumer Centres Network (ECC-Net), which represents consumers in cross-border disputes,highstreetandonline retailers across Europe are using a hard sell to get con- sumers to buy warranties by claiming they offer the only protection against buying a faulty product.

In reality consumers’ existing statutory rights already protect them from being sold defective products.

“Cases have been reported in which consumers have been informed that no guarantee exists for the item purchased. Sellers also often give the impression that only the commercial warranty applies to their purchase,” claimed the report.

Being persuaded by a shop to buy a warranty is not the only example of consumers getting ahardsell.Banksusetheircus- tomer database to cross-sell products even when they may not be the best deals on the market. Health insurers, meanwhile, have gradually branched out into the sale of other insurance products such as travel and life insurance.

We look at where you could be cross-sold products, and warn you of the pitfalls of not shopping around.

More than half of consumers have purchased a warranty at some point, with more than three-quarters doing so when buying household goods or electrical items, according to ECC-Net estimates.

It questioned whether they were worth the money, how- ever, since your existing statu- tory rights already protect you from buying faulty or defective products.

Under Irish consumer law, you have up to six years to seek redress for a faulty or defective item by way of a repair, replacement or refund.

Grace Duffy, communication officer at ECC Ireland, which investigates cross- border disputes on behalf of consumers, said: “Consumers get confused between warran- ties, guarantees and their actual statutory rights.

“Sometimes it isn’t always clear to them that if the war- ranty expires, they can still rely on their statutory rights that have been put in place by legislation.”

The ECC-Net believes that retailers are adding to the confusion by claiming that a warranty is the onlyprotection against buying a faulty product.

Buying a warranty makes sense only if it adds to your existing consumer rights—but even then, they can be bad value when set againstthe cost of an item.

“Warranties are completely optional and can be expensive, so don’t feel pressured into takingone,”saidtheCompeti- tion and Consumer Protection Commission (CCPC).

“Consider the cost of replacing the faulty item and compare this with the cost of the warranty. Replacing the item may cost less.”

Mortgage borrowers could be paying thousands of euros in unnecessary premiums by buying mortgage protection insurance from their lender instead of shopping around.

Mortgage protection is a form of life insurance policy used to pay off your mortgage if you die before the end of the term.

Borrowers are legally obliged to take out the insur- ance when taking out a mort- gage, and banks generally try to cross-sell it to customers with the loan.

However, many people do not realise that you are not obliged to go with the policy offered by your bank.

Peter O’Reilly, managing director of low.ie, a broker, said: “People are often just so gratefultogettheirmortgagein the first place that, when the subject of mortgage protection arises, they are just happy to sign. In our experience of talking to clients, banks don’t make it clear that you can shop around.”

O’Reilly said that if you bought from a bank, you were unlikely to get the best deal as they operated as a tied agent, preferred provider.

For example,KBC, AIB,EBS, PTSB and Ulster Bank deal exclusively with Irish Life. Bank of Ireland, meanwhile, sells mortgage protection policies only of its subsidiary New Ireland.

Failing to compare the market could cost you thou- sands of euros over the lifetime of a policy.

In 2014, a survey by the CCPC found that consumers could make savings of up to €3,807 on mortgage protection insurance.

Even if you had already bought a mortgage protection policy from your bank, you could still make big savings by switching.

“Most of our clients are ex-bank customers who were sold a poor value policy. Many don’t realise it is far easier and simpler to switch to a new policy nowadays,” said O’Reilly.

Banks will also try to cross-sell home and car insurance policies to their existing customers.

As with mortgage protection insurance, banks are tied to one provider, limiting your chances of getting the best deal.

For example, in the case of home insurance KBC is a tied agent to Zurich; AIB is tied to AXA; Bank of Ireland is tied to RSA Insurance; and PTSB sells Allianz policies.

Brian McNelis, director of general insurance with the Irish Brokers Association, said: “Banks have no hand, act or part in the actual product. They’re just a database of customers.”

According to McNelis, the commissions earned by banks for cross-selling generalinsur- ance were substantially higher than what brokers earned, making itless likely you would get the cheapest deal.

Jonathan Hehir, of insur- ance broker coverinaclick.ie and insuremyhouse.ie, said: “Buying insurance from your bank is crazy. It’s a sure way of throwing away money. You have to shop around.”

Car hire companies pressure their customers into buying expensive car hire excess insurance even when there are When renting a car, you’re typically covered only past a certain excess, which is the amount you have to pay your- self in the event of a claim.

The excess can be up to €2,000 and it is this amount that canbedeductedfromyour credit card for damage — even for a tiny scratch or in cases when the damage was caused by a third party.

Car hire companies are known to give a hard sell at car rental desks to convince cus- tomers to buy expensive car hire excess insurance.

Faced with the possibility of ending up with a huge excess charge on their credit card, many will take it out.

Ciaran Mulligan, managing director of carhireexcess.com, which sells separate car hire excess policies, said: “It often comes as a shock to travellers when they get to the car hire desk and are presented with this charge. Many feel that theyhavenootherchoice[than to buy it].”

A survey by carhireex- cess.com in 2014 revealed just how expensive buying the insurance froma carhire com- pany can be.

For example Hertz charged €330 on top of the cost of 14-day car rental in Spain to buy out an excess of €1,050 when renting an Opel Corsa.

A cheaper option is to buy a separate car hire excess insurance policy online from carhireexcess.com for €2.99 a day or at €41.86 for 14 days.

All four health insurers cross- sell travel insurance. Laya also sells discounted life insurance to its customers.

Laya has pitched the product as a cheap option for con- sumers who can’t afford life cover. You get a 5% discount if you already have your health insurance with Laya.

LABrokers, which sells discounted insurance online, said that Laya’s policies could cost you thousands in additional premiums compared with cheaper deals.

John Geraghty, director of LABrokers, said: “Other insurers offer indexation where the amount of cover and premium increases, thus maintaining the true value of thepolicyinyears tocome.You also can’t inflation-proof your life cover with Laya.”

Cross-sell deal €1,000 dearer
Liam O’Shea will save almost €1,000 by taking out mortgage protection insurance independently instead of going with the policy his bank tried to cross-sell him.

The 53-year-old from Co Louth, who works for the public transport authority CIE, recently took out a mortgage with one of the main providers.

When finalising the loan, O’Shea’s lender tried to sell him a mortgage protection policy — a form of life insurance designed to pay off his mortgage if he died before the term of the loan.

O’Shea’s lender sells policies only from Irish Life, with whom it had an exclusive agreement.

Preferring to shop around O’Shea used the services of an online broker, low.ie. The policy he bought from low.ie will save him €965 over its 12-year term.

O’Shea, who has taken out several mortgages over the course of his life, said he knew from past experience he could shop around, but doubted whether others would do the same.

“You’re led to believe that buying the insurance is just another step in getting the mortgage.

“It’s not really made clear that it’s an entirely separate product and that you don’t have to go with your lender".

“It’s also not clear that the bank is a tied-agent and deals with only one provider,” he said.

You have to have mortgage protection insurance in place by law before you can draw down the loan, said O’Shea, so people are less likely to source quotes.

O’Shea also rejected his bank’s home insurance product, opting instead to go with AXA with whom he gets a company discount.

“To be fair to the banks, they’re not breaking any laws by trying to sell extra products, but at the same time they try to sell as much as they can,“ he said.

“They have targets to hit like any other salesman.”

MARK CHANNING This article appeared in the Sunday Times