Warranty fraud – an underestimated crime

 

Warranty fraud (also known as service fraud or service abuse) causes global damages in the billions. According to estimates, warranty fraud reduces the profits of many companies by up to five percent each year. The threat continues to grow; not least because warranty claims are being increasingly submitted via the Internet and customer service call centers. This makes it easier for fraudsters to obtain warranty benefits using stolen or falsified information.

The times in which warranty benefit claims during the warranty period were personally submitted to the seller or provider are over in many industries. Comprehensive services are essential to be able to compete via good customer service, usually supported by the Internet and call centers. This necessarily entails risks of misuse. Experienced fraudsters know how to use weak points in service procedures without leaving any noticeable tracks behind.

 

“Therefore the companies should identify warranty fraud as early as possible in order to avoid greater damages,” explains Jörn Weber, Kriminalhauptkommissar (inactive) and Managing Director of corma GmbH, specialized in investigating fraud crimes.

corma GmbH: Data Analytics & Investigations

Typical patterns of warranty fraud

 

Warranty fraud is committed by sales or service partners as well as by end clients. In fact, the employees of a service center of Electronics Company Toshiba were involved in such a case. The suspicion arose, because the partner's employees settled over 60 percent of the warranty cases which they declared to Toshiba within two days, while all other partners required a significantly longer time. The investigation revealed that both end clients and claims for numerous warranty cases were fabricated by fraudsters.

 

Service abuse by end clients is marked by different typical patterns. This is how Cisco, the provider of high quality network solutions, suffered damages in the millions: using false names and addresses, one criminal ordered and obtained hundreds of replacement parts. Said criminal sold these parts on over the Internet, while he benefited from special warranty policy according to which a client immediately received replacement parts, even before returning the defective components.  In this particular case –typical for this type of warranty fraud – the manufacturer received either worthless parts or no parts at all.


Secondary damages often exceed primary damages

 

It is worth mentioning that secondary damages often exceed primary damages, i.e. if fraudulently-obtained products are sold on via anonymous Internet platforms. These damages involve not only sales and pricing, but also the company’s reputation, as compliant customers suffer in the end.


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Bastian Moritz
corma GmbH
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Tel. :+49 (2161) 277 85 - 0

 

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