You’ve surely seen the commercials publicizing the repercussions of defrauding insurance companies in which someone suggests taking part in a seemingly harmless scheme. Of course, the proposed activity, which is intended to help the alleged claimant, is not only unethical and costly to the industry, but illegal. These commercials are meant to educate the public on the consequences of fraud by demonstrating that what appears to be a harmless way to recoup a loss is actually a serious crime. They also highlight the repercussions of these supposedly victimless deeds, which include everything from a conviction record and jail time to a lifetime of employment difficulties.
The IT industry has been dealing with a similar issue ever since the computer first entered commercial production, and manufacturers continue to struggle as they attempt to authenticate a myriad of warranty claim discrepancies. That includes the use of services or guarantees that businesses or their clients are not entitled to, such as equipment replacement, technical support, program access or other activities. When they last visited the issue in 2009, the Alliance for Gray Market and Counterfeit Abatement (AGMA) and PricewaterhouseCoopers (PwC) projected industry losses between 3 and 5 percent of revenue due to warranty and service abuse. Using the lower end of the estimate, the cost to just the IT manufacturers in the survey was tallied at more than $10 billion for that year alone.
Even with the trend towards more disposable IT components, warranty abuse is expected to remain a major issue for the foreseeable future, adding significantly to the cost of doing business for OEMs. Of course, the manufacturers that experience these losses typically pass them on to solution providers and end-users in the form of lower margins and higher prices. That line of reasoning may sound cliché, but few businesses can take a 3 to 5 percent hit in a competitive industry without it affecting their operations, partners and customers.
Based on continued sales and warranty claims growth, the expenses attributed to abuse are unlikely to abate. While a number of claims issues have been attributed to fraudulent activities or intended negligence, industry experts suggest that many are simply errors caused by a lack of information or poor organizational practices. It might simply be a case of entering the wrong part number or indicating the incorrect amount on an order form. With disparate claim systems between multiple vendors, 100 percent accuracy for a busy solution provider is a lofty goal, and when their end-users play a part in the process, that objective gets much more difficult.
So what can solution providers and vendors do to address warranty abuse issues? An upcoming CompTIA IT Services and Support (ITSS) community-sponsored white paper suggests a number of options, including collaboration with OEMs and other experts to create standard file formats and improved communications processes. Enhanced training and additional system safeguards, such as appointing a company warranty administrator, could help reduce errors and speed customer claims.
The document explores a number of creative ideas for addressing warranty abuse. It also discusses the role of solution providers, OEMs and other interested parties here. CompTIA and AGMA spent two years conducting research and assembling the findings for this report, surveying more than 400 service providers and 15 OEMs, as well as group workshops and multiple in-depth interviews with a number of industry thought-leaders. The paper on warranty abuse and its profitability implications is expected to be released and available for CompTIA members prior to ChannelCon in July.
Brian Sherman is founder of Tech Success Communications, specializing in editorial content and consulting for the IT channel. His previous roles include chief editor at Business Solutions magazine and senior director of industry alliances with Autotask. Contact Brian at Bsherman@techsuccesscommunications.com.
