Warranty fraud seems to be a fact of life. If your business is like many electronics companies, you’ve had plenty of customers avoid service charges by having faulty products repaired at no cost without active warranties. You’ve had them obtain products for free by claiming, and sometimes re-selling, replacement parts/products without returning broken ones. So, it shouldn’t be a surprise that fraudulent warranty claims regularly cause businesses to lose about five percent of their annual revenue and account for up to 15% of their warranty costs.
The problem is, most companies don’t realize the extent of their problem, don’t have sufficient ways to prevent fraud and, when they do discover it, struggle to act. Why? Much of it comes down to not having the right data and visibility across the warranty management process.
Ripe for fraud
Warranty management is typically spread across several departments and processes, from product registration and claims processing to warranty entitlement and product returns, repair and replacement. Because there is no one person or group responsible for all of it, and there are so many organic breaks in the lifecycle, it can be easy for fraudsters to intentionally manipulate the naturally weak links in the chain. And anything that seems easy for fraudsters to get away with, attracts more of them.
For instance, the reason customers who aren’t entitled to repairs sometimes get away with free fixes is that the group managing warranty entitlements is different than the service agents who handle customer calls and order technician dispatches. Often, there’s no continuity of data between the two groups, and agents who are evaluated on call length find it less time-consuming to send technicians on site than to track down warranties. And a better experience for the customer, as well as the agent.
Best practices for minimizing fraud & recovering losses
The good news is that warranty fraud doesn’t have to be so prevalent. There are a number of best practices you can follow to mitigate fraud, including collecting all the right data, properly using predictive analytics, leveraging a control tower to monitor and gain insights into the end-to-end warranty process, and acting quickly when you uncover fraudulent events.
#1: Comprehensive data collection
To effectively manage warranties, you need a lot of data, everything from the purchaser’s personal/corporate contact information, product serial number, date of purchase and proof of purchase, to warranty scope and product defects. The fewer data points you have, the harder and longer it takes to verify appropriate warranty claim entitlements, and predict and identify fraudulent behavior. Equally important, it also becomes much more difficult to recover losses if you can’t quickly lock in your evidence by readily proving what was improperly claimed or gained, how, when and by whom.
Data collection starts at product registration. With 68% of consumers saying they never register products, and many who do filling out partial or inaccurate data, many companies find themselves at a disadvantage from the get-go. That’s why best practice is to put a process around data collection, beginning with making registration as easy and frictionless as possible, such as using online forms and considering pre-stamped cards.
Once you receive information, you need a way to identify and handle exceptions in real-time. This means recognizing product registration data gaps and establishing an efficient customer outreach process to fill in the blanks, including scripting and training personnel on how to best interact with customers to acquire that information. You also need to make sure agents know exactly what type of information to collect when customers submit warranty claims, and how to gather explicit details on what the defect is and why the claim is being submitted. Only then can you begin to evaluate the claim, using business rules to verify or reject entitlements and to navigate next steps in the decision tree, such as whether to attempt fixing the product remotely or by sending technicians on site, or whether to immediately replace it via an advanced exchange.
#2: Ongoing predictive & preventative analytics
The data you collect about customers and their products/warranties can be used to identify patterns that indicate fraud. The more data you have, the better algorithms you can build for predicting fraud, and the more specific and accurate your results will be.
By taking a historical view, advanced analytics can tell you, for instance, which product types, components, serial numbers, geographical locations and companies have had more fraudulent warranty activities. You should also tap into Known Fraudster Databases, which house information about people who have committed fraud and can provide insights into broad industry trends like fraud schemes, which you can use to flag similar patterns in your own data sets.
All this enables you to create risk indicators, use predictive propensity scoring to determine fraud likelihood for each warranty claim, and segment customers/claims by risk level. For instance, instead of processing higher-risk claims as you would lower-risk, they would be flagged for further examination according to rules you set for that risk level.
Also, keep in mind that because fraud can occur at any time and in any part of the warranty chain –registration, triage, advanced exchange, dispatch – it’s important to consistently and continually apply analytics throughout the process.
#3: Real-time control tower
Control towers are key to bringing data and analytics to life. They are where the analytics output, presentation and actioning takes place.
With the right control tower, you’ll be able to:
- Pull together fragmented data sets and provide an integrated view of the entire warranty process
- Run business rules that flag high-risk warranty claims and direct specific actions
- Obtain the visibility, insights and directions you need to prevent fraud
· See real-time and point-in-time status of individual and aggregate claims, for instance, how many cases were flagged as potentially fraudulent that day/week/month/quarter, where in the process the activity took place, how many high-risk claims are active, which types have been verified or rejected.
- warranty fraud trends so you can develop plans to address them
- Maintain an audit trail for fraud investigations and loss recovery
#4: Act fast
Speed is of the essence when it comes to fraud detection, prevention, and recovery. The longer it takes for each step in the process, the more time criminals have to conduct and cover up their activities. This means being fast in collecting data, analyzing data, identifying fraud, and investigating likely and/or known instances. Acting fast enables you to preserve evidence and make your moves while the data is still current and the crime is fresh.
To effectively combat fraud, some companies outsource their warranty claims program. Doing so gives them access to the rich data sets needed to compare their information against broader industry trends, and to experts who can build the right predictive models and take the right actions quickly, while freeing them to focus on their core business.
Bottom line? Be vigilant, always. When it comes to warranty fraud, you can’t let your guard down.