Consumers and Product Insurance Purchase Decisions

Author

Consumers Council of Canada

Organization

Consumers Council of Canada (CCC)

Published

2018

Summary

Upon purchasing household items, consumers are often prompted to pay additional amounts for extended protections. Sometimes called “extended warranties”, “protection plans” or “service plus,” these products are designed to ease the purchaser’s anxiety that their products may fail after their warranty expires, but before they can enjoy all the expected benefits of a product. Unfortunately, these extended protections often fall short of their promises, as consumers who purchased the Sears Protection discovered when Sears Canada was liquidated in fall of 2017. The purpose of this study is to determine whether or not consumers are truly making informed decisions when they purchase enhanced protection. To investigate this issue, a survey of 2,000 Canadian consumers who had purchased enhanced protections was conducted to determine their knowledge, attitudes, and experiences with these products. Additional research was also carried out on the relevant federal and provincial legislation, and interviews were conducted with industry participants, provincial government experts and other experts.
This study found that those who purchased enhanced protections for one product were three times more likely to buy one for another product, which suggests that these protections are designed to appeal to risk/regret averse segments of the population. It was also found that 30% of Canadian consumers had purchased extended protections on a major household appliance over the past three years. Additionally, enhanced protections are characterized by informational asymmetry, high markups from retailers, and lack of competition at the point of sale. Finally, it was discovered that there is a lack of consistency between the provinces in how they treat warranties and extended warranties, with only Quebec requiring sellers to disclose warranties before offering additional warranties for sale.
In light of these findings, CCC recommends exploring measures to increase in-store competition at the point of sale, mandatory disclosure of warranty protection prior to sale of extended warranties, and expanded basic warranty protections.

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OCA Funded Research
This research received funding support through the Office of Consumer Affairs' Contributions Program.


Contact information

Address
Consumers Council of Canada
201-1920 Yonge Street
Toronto, ON  M4S 3E2
Telephone
(416) 483-2696

Source: Consumer Policy Research Database

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