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Introduction

A few weeks ago, I wrote about how medtech companies are bleeding millions to revenue leakage in their supply chains. Warranty fraud is another part of that same story — a silent killer of margins that rarely makes it to the executive risk register.

Here’s the uncomfortable truth: the best available global estimates of warranty fraud losses come from studies conducted between 2009 and 2015. That’s right, we’re still relying on decade-old numbers because the industry hasn’t invested in updating them. But the losses — then pegged at around 3% to 10% of total warranty expenses, or roughly $25 billion annually — haven’t magically gone away. If anything, the growth of digital service networks and globalised supply chains has probably made the problem worse.

Executives don’t need another abstract fraud risk to worry about. You need to know how this eats into your bottom line, distorts your financial planning, and ultimately undermines your ability to commercialise new technology. So let’s get practical.

MedTech Companies Are Losing Millions to Revenue Leakage Without Knowing It

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The Cost of Warranty Fraud

Warranty fraud is not a rounding error — it’s a profit killer. Surveys by AGMA Global and PwC suggest that warranty and service abuse lead to 3% to 5% revenue losses for manufacturers.

• In the U.S. alone, dealer and service provider fraud cost about $2.6 billion in 2018.
• Automotive and electronics manufacturers typically spend 2.5% to 2.7% of product revenue on warranty claims. A chunk of that is pure fraud.
• Some industries report warranty fraud accounting for up to 15% of total warranty costs.

That’s money straight out of your cash flow. And because fraudulent claims push warranty expenses beyond accrued reserves, the impact doesn’t just hurt margins — it hits your balance sheet, profitability, and valuation.

If you’re courting investors or pushing for commercialisation, warranty fraud doesn’t just look like sloppy operations. It looks like you don’t have control of your supply chain or insider threat risks.

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How Fraud Affects Manufacturer Warranty Claim Forecasts

Most manufacturers do their homework when it comes to warranty reserves. Forecasts are based on historical failure rates, reliability data, and statistical modelling. On average:

• Companies set aside around 1.4% of product sales revenue to cover warranty claims.
• Costs range anywhere from 0.5% to 5%, depending on industry and product complexity.
• Automotive and electronics firms typically accrue closer to 2.5% of sales.

This would all work fine — if the claims data reflected reality. Fraud blows a hole in that logic. Fictitious or inflated claims distort the numbers, meaning your forecasts are wrong, your reserves are short, and your cash flow suffers.

For executives, that means warranty fraud is not just a line-item expense. It’s a forecasting and planning risk — the kind of risk that makes boards twitchy and investors cautious. So lets take a look at how it happens.

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How Does Warranty Fraud Occur?

Here’s where it gets messy. Warranty fraud is not one type of scam, it’s a whole ecosystem. And unlike other types of fraud, the biggest offenders often sit inside your own supply chain or service networks.

A. Customer Fraud

• False claims for non-existent failures.
• Misuse or deliberate damage disguised as product defects.
• Counterfeit receipts or altered purchase details.

Case Study A – Automotive OEM Dealer Fraud:
Dealers manipulated mileage reporting and double-charged customers and manufacturers for the same repairs. Fraudulent warranty claims stacked up until analytics flagged the anomalies.

B. Dealer and Service Agent Fraud (Insider Threats)

• Charging both the customer and the manufacturer for the same repair (classic double-dipping).
• Manipulating mileage or usage data to extend warranty coverage.
• Repeatedly claiming for the same “repair” months later.

Case Study B – Computer Technology Provider:
One company estimated losing $100 million annually to warranty fraud by service providers. After implementing data-driven fraud detection, they uncovered $11 million in fraud in nine months and saved $67 million over five years.

C. EmployeeS (Insider Threats)

• Approving false claims for friends, family, or colluding dealers.
• Tampering with data to inflate invoices.
• Steering warranty work to preferred suppliers for kickbacks.

Case Study C – Electronics Manufacturer in Australia:
Fined for misleading consumers about their warranty rights — proof that warranty issues don’t just hurt margins, they also create reputational and legal risk.

D. Warranty Provider and Administrator Fraud

• Overselling coverage or denying valid claims.
• Colluding with dealers or service providers to share the spoils.

Case Study D – Multi-national Manufacturer’s Pan-European Warranty Fraud Detection:
A multi-national manufacturer’s after-sales assessment revealed inconsistent warranty costs across countries attributable to service agent fraud. Fraud detection analytics quickly uncovered extensive abuse despite initial management skepticism, which was then extended to other regions like Asia, revealing similar fraudulent practices involving colluding employees and service agents.

As you can see from this warranty fraud taxonomy and these case studies, these aren’t edge cases. They’re mainstream manufacturers dealing with systemic fraud inside their own networks.

The Hidden Threat to Your Bottom Line: How Sales Fraud is Bleeding Your Business Dry

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4. How Should Manufacturers Protect Their Revenue From Warranty Fraud?

The good news? You don’t have to accept warranty fraud as a cost of doing business. A comprehensive control framework works when it’s implemented with intent.

a. Contracts

Clear, standardised terms that define coverage and service entitlements. Include audit rights and anti-fraud clauses to keep dealers and providers honest.

B. Transaction Controls

Validate customer entitlement and claim legitimacy every time. Automate material returns control. Layer in analytical scoring so high-risk claims get flagged early.

C. Analytics

This is where the magic happens. Combine business rules, anomaly detection, predictive models, and even social network analysis to spot patterns of collusion. Fraudsters aren’t random — their footprints are there if you look.

D. Service Network Management

Benchmark your dealers, agents, and providers. Use performance dashboards, mystery shopping, and audits to keep them accountable. Service networks are fertile ground for fraud — manage them like the strategic assets (and risks) they are.

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Conclusion: Stop the Silent Margin Killer

Warranty fraud is more than an operational headache — it’s a direct attack on your revenue, your forecasts, and ultimately your valuation. If you wouldn’t tolerate a 5% revenue leak from your supply chain, why are you tolerating it from warranty fraud?

As executives in manufacturing and medtech, you have two choices:

1. Treat warranty fraud as an unavoidable cost and keep bleeding margins.
2. Or treat it as a strategic risk — implement controls, demand analytics, and take back control of your revenue.

Personally, I know which choice makes your next board meeting easier.

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Further Reading

1. Curwell, P. (2025). MedTech Companies Are Losing Millions to Revenue Leakage Without Knowing It
2. Curwell, P. (2025). The Hidden Threat to Your Bottom Line: How Sales Fraud is Bleeding Your Business Dry
3. Kurvinen, M., Toyryla, I., Prabhakar Murthy, D.N. (2016). Warranty Fraud Management: Reducing fraud and other excess costs in Warranty and Service Operations, Wiley.
4. The real cost of warranty fraud and how to detect it – Intellinet Systems
5. Warranty Week archive – industry analysis
6. LG to pay $160,000 for misleading warranty representations – ACCC
7. Reducing service provider and warranty fraud – Elder Research case study
8. Syncron: 5 key warranty metrics every warranty manager should know
9. CompTIA White Paper – Warranty Abuse
10. Warranty fraud analytics techniques – INSIA

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