The watchdog said customers were spending more than £100 million on Homeserve policies, when most would be entitled to free repairs through water companies or home insurance.
At least 14 UK water companies have “affinity partnership” agreements with Homeserve. Terms vary, but water companies usually offer access to their customers and the use of their logo in direct marketing mailshots.
Which? executive director Richard Lloyd said: “It’s totally unacceptable that almost all the water companies are pushing potentially unnecessary water supply pipe insurance from third-party private companies.
“Few companies highlight their own assistance schemes, and most fail to tell you that your home buildings insurance may overlap on the key benefits of cover.”
Which? found more than half of water companies offer £250 or more towards the cost of repairing an external pipe. It said that such assistance, where mentioned, was played down in Homeserve’s marketing letters.
The watchdog is calling on water companies to offer the same free pipe repair scheme to make it clear to consumers what they are covered for.
Regulator Ofwat said it had raised concerns over marketing of third-party insurance with the Financial Services Authority (FSA).
The criticism from Which? will be another blow to Homeserve in what has been a difficult year. The domestic repair service suspended its telesales in October 2011 after an internal investigation into potential mis-selling.
It soon resumed inbound sales activity, but outbound calls remain on hold, customer numbers have slumped and the company’s share price has roughly halved. It is understood to be in continuing discussions with the FSA.
Homeserve defended its policies and accused Which? of providing innacurate information. It said its policies covered a number of pipe problems that water companies and home insurers did not, and would get an engineer on the scene within two hours of an emergency.
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