Warranty costs don’t surge overnight. They build up gradually when OEMs aren’t proactive and let signals, such as repeated claim filings, delayed supplier recovery, and monthly cost overheads, slide. The results? Warranty costs eat into your profit margins. According to a report, OEMs in the automotive industry alone spent a whopping $57.9 billion in warranty claims in 2024. This figure has only increased in the past few years.
Along with slowing down your revenue generation, costly warranty management puts dealer relations at risk, creates operational bottlenecks, and leads to internal disputes. By resolving their warranty management issues, OEMs can gain better financial control and put the money towards actual productivity and growth.
To begin with, OEMs should evaluate the key factors that lead to high warranty costs.
Signals behind costly warranty management arrive early. OEMs either undermine them or are not able to control them swiftly.
1. High Number of Fraudulent Claims
Fraudulent claims are common in the aftermarket. They deplete 3-10% of the warranty management budget of an OEM, resulting in millions of losses each year. Fraudulent claims are also of various types. Sometimes, the dealers overcharge OEMs by showing fake invoices. Other times, claims are approved on unofficial work and spare parts. When these frauds happen, OEMs end up reimbursing for spare parts and service from their own pockets.
2. Poor Supplier Recovery
Many times, OEMs are not able to hold suppliers accountable for sending poor-quality spare parts, and their supplier recovery rates remain low. By the time OEMs notify suppliers for recovery, new batches of the spare parts are already dispatched, either leading to wastage or an increased number of warranty claims.
3. Manual Processing
Manual warranty claims processing is tedious. Not only is it costly itself, but it also leaves margins for error. The warranty claims costs increase because of data mismatch, slow processing, miscommunication, lack of transparency, and inadequate control over manual processing, etc.
4. Inefficient Policies
Unclear policies that create confusion for both OEMs and dealers regarding the warranty management process, do not define accountability, reimbursement costs, and timelines, and also lead to costly warranty management. They are responsible for inconsistent claims processing, poor handling, and delayed reimbursement across the entire dealer network.
To decrease their overall warranty management costs, OEMs can take the following measures.
1. Audit Trailing
Audit trailing is the process of preparing a step-by-step log of events. It helps ensure that proper processes are being followed and maintains accountability within the internal team. It can also help identify redundant steps, speed up the entire process, and ensure timely and controlled claims, where the risk factor can be reduced.
2. AI-Based Fraud Detection
With fraudsters becoming advanced and coming up with new fraud tactics every day, AI-based warranty fraud detection remains the only feasible way to tackle these fraudsters. With the help of AI, OEMs can conduct 100+ checks on the claims submission data, such as proximity from the warranty end date, cost of claim, dealer name, region, labor cost estimation, inventory correlation, etc., to distinguish fraud claims from genuine claims. Basically, AI-based fraud detection secures the entire process and helps OEM establish trust.
3. Warranty Analytics
To streamline claims management and reduce warranty costs, it is essential to understand warranty data, such as the number of claims processed each year, costly parts under claims, the average cost per claim, or the region that files the maximum claims. With the help of such data, OEMs can do claims forecasting, prepare better warranty budgets, and even focus on product improvement.
4. Policy Refinement
OEMs should draft warranty policies that clearly define the warranty claims process, the reimbursement process, warranty guidelines, the inspection process in case of warranty fraud, any exceptions, and all other important terms and conditions. The policies should be aimed at simplifying the claims process instead of complicating it. When the policies are adhered to by the dealers, ensuring compliance becomes easy. The polices can also be used to hold the right people accountable in case of fraud or non-compliance and take mitigation actions.
5. Stronger Supplier Recovery
As discussed above, a lack of transparency in the claims process, no accountability, and weak supplier contracts make it difficult for OEMs to recover warranty parts costs from suppliers. To hold accountability, it is essential to provide complete visibility in the claims data. The supplier should be able to see the number of malfunctioning parts in real time, and OEMs should have the option to send recovery requests immediately.
Intelli Warranty is a leading warranty management software that helps global OEMs streamline warranty management, increase accuracy, and control warranty costs while safeguarding their profit margins. It uses AI capabilities to bring automation in the processes, detect fraudulent claims, and bring visibility in operations to increase supplier recovery rates.
Let’s take a close look at how Intelli Warranty can help OEMs fix costly warranty management below:
1. AI-Powered Fraud Detection
Intelli Warranty runs claims data through multi-point validation to detect any fraudulent claims. The checks that it runs on claims data include, but are not limited to:
2. Complete Policy Administration
Warranty terms and conditions can be complex, and dealers can make errors while manually administering them. Intelli Warranty helps remove the complexity by letting OEMs define part and component coverage across multiple models and versions. Other parameters, such as custom payment reimbursement terms, varying warranty durations, etc., can also be controlled with Intelli Warranty.
3. Supplier Recovery Module
To improve supplier recovery, Intelli Warranty automates recovery claims generation and sends them to the supplier. Moreover, both OEMs and suppliers get complete visibility to the claims data so that the entire operations remain transparent and suppliers can see which part customers are filing maximum claims for. With complete transparency in the operations, it gets easier for OEMs and suppliers to adhere to the Product Support Agreement (PSA), which holds parties accountable for replacement and also defines other recovery-related terms.
4. Automated Audit Trailing
Intelli Warranty maintains a clear trace of the claims process with its automated audit trailing feature. OEMs can ensure that all dealers adhere to processes defined by them. OEMs can record essential details such as claim filer name, evidence submission details, cost estimations, etc. By setting custom parameters, OEMs can enable auto-approval on claims and remove redundant steps. Thus, automatically streamlines operations and keeps costs under control.
5. Work Queue Creation
Human inefficiency, including lack of expertise and manual errors, also increases warranty management costs. Intelli Warranty lets OEMs create custom work queues and assign the most qualified approver to claims based on 40 configurable parameters, including region, claim costs, model, variant, and more.
6. Helps Improve Product Quality
Warranty analytics feature of Intelli Warranty provides OEMs with in-depth insights into claims info, be it related to the number and type of spare parts, claim regions, claim frequency, part replacement costs, average warranty costs, and more. With the help of this data, OEMs can even initiate an RMA process and send callback requests for R&D. This can help OEMs improve the overall product quality and decrease claims costs.
OEMs don’t earn anything from warranties. They’re provided as a protective measure to customers. However, only those OEMs that offer great warranty coverage and have confidence in the quality of their equipment. Unfortunately, equipment breakdowns still occur. While OEMs repair the equipment in good faith, many times they end up losing money because of warranty fraud and an unrefined claims process.
This is why OEMs need to work on lowering their warranty management costs. While there can be multiple strategies to do so, implementing AI-enabled automation is a cost-effective and highly practical solution.
1. Why are my warranty management costs high?
There can be multiple reasons behind high warranty management costs. These can include manual errors, fraudulent claims, unrefined policies, a low supplier recovery rate, and inadequate analytics data to drive any meaningful decisions.
2. Can AI help control warranty costs?
Yes, AI can help OEMs control their warranty costs. It can enable automated policy administration, ensure complex warranty terms are met, send timely reminders to suppliers for recovery, and even conduct multi-check validation on factors like claim costs, claim frequency, region, exaggerated pricing, and more to identify fraudulent claims.
3. How to increase the supplier recovery rate?
OEMs can improve the supplier recovery rate by strengthening their Product Support Agreement (PSA), improving visibility in the entire claims process, and automating recovery generation.
4. How can OEMs increase warranty budget?
The best practice is to add a certain percentage of your warranty costs to your product profit margins. While the remaining amount can be recovered by selling extended warranties. Customers who are in serious need of your equipment will be interested in purchasing extended warranties. Lastly, scrap costs and supplier recovery amounts can be added back to the warranty budget.
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