Business Tips

What Is Warranty Fraud and How Can You Prevent It?

What Is Warranty Fraud and How Can You Prevent It?

Companies offer warranties as a form of customer protection. If a warrantied product breaks or malfunctions within a certain period of time, the warranty usually stipulates that the consumer can send it back for repairs or replacement. Offering warranties can increase customer satisfaction rates and improve the brand’s image, attracting new customers and keeping existing ones happy. In general, companies that manufacture high-quality products make more money by offering warranties than they spend on repairing or replacing defective products. Unfortunately, any company can become the victim of warranty fraud. In some cases, this can substantially impact their bottom lines.


What Is Warranty Fraud?

Warranty fraud occurs when a customer or a third party files a false warranty claim.

Technically, companies can also commit warranty fraud. If they fail to honour valid warranty claims or sell extended warranties that don’t actually offer additional protection, these issues are also considered warranty fraud.

Preventing internal warranty fraud is a simple matter of ensuring that employees know that the company’s reputation is its first priority.

Preventing customer-perpetrated warranty fraud is more difficult.

Here’s what companies can do to protect themselves.


Choose the Right Asset Tags and Labels

The primary purpose of barcodes and asset tags is to identify and track property.

However, some asset labels can also help business owners protect their companies against warranty fraud.

Void indicating asset labels discourage false warranty claims by preventing their removal.

If customers or disreputable third parties attempt to remove the barcode label, it will leave behind a repeating pattern of the word “VOID” to indicate that the label has been tampered with.

Destructible asset labels are also a good option. They are designed to break apart upon removal, which means they cannot be transferred between products.


Use Analytics

Data analytics is a recent field that focuses on compiling and analyzing large data sets.

Using data analytics, fraud prevention experts can establish benchmarks used to identify deviations and anomalies.

Since computers can process huge amounts of data, companies can use them to identify potential issues across a wide customer base.

They can also break down data by region, product, repair type, or even warranty quarter.

This makes it easier to identify potential inconsistencies and validate fraud.


Clear Contracts

If a company’s warranty contract isn’t clear about what issues are covered, how long it applies, and who is eligible to receive a refund or free repair, it makes preventing fraud more difficult.

Make sure the terms of the contract are abundantly clear so consumers do not attempt to file warranty claims for issues that have nothing to do with the manufacturing process.

Otherwise, it will encourage people to file unnecessary claims and, if there’s nothing in the contract to prevent customers from filing these claims, may make companies legally obligated to honour them.


Claim Validation

An adequate claim validation process can identify fraudulent claims.

Combine claim validation with data analytics to reduce employees’ workloads and eliminate human error.

Companies who do so won’t just save money.

They’ll also expedite their claim approval and rejection process, improving customer service and satisfaction rates for those customers who were genuinely entitled to file a warranty claim.


The Bottom Line

Offering warranties is a great way to build brand loyalty and improve customer satisfaction rates, but companies need to protect themselves against warranty fraud.

As long as they follow the tips above, business owners should have nothing to worry about.


Also Read: The Most Dangerous Jobs in the United States

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About Sophia Williams

Sophia is a passionate writer and an avid reader.
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