Chapter 1Overview

Warranty costs are a significant burden for manufacturing companies. Traditionally, companies have seen warranty costs driven primarily by product quality and secondarily by repair network efficiency. However, there is another factor to be taken into account: As with many other fields of life, if there is a lot of money involved and an opportunity to get a part of that through fraudulent behavior, there will always be a small number of people or companies trying to take advantage of that. In our own client experience and in the news, we have seen the whole spectrum of warranty fraud, starting from a bit of sloppy procedures and occasional overcharging and ending with organized criminal activities in companies whose main business logic includes generating revenues through warranty fraud in addition to doing some real repair service activities.

Various parties can be involved with conducting warranty fraud: customers, sales channel, extended warranty or insurance policy brokers, service agents, warranty administrators, and even the manufacturer or warranty provider themselves.

The fraud done by the service network varies from opportunistic small-scale overbilling to fraud done by organized crime in industrial scale. Sources estimate that 3 to 15 percent of warranty billing is fraudulent (Arnum, 2015, AGMA and CompTIA, 2013, AGMA and PWC, 2009). Consequently, the overall amount of warranty fraud can be estimated to be at least US$1 billion in the United States ...

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