In-house Warranty Claims Processing – A System Likely to FAIL!
Warranty claims processing continues to plague automotive dealers with high administration expense, managerial distractions, employment issues, and staggering losses. Many have asked, “Why does this seemingly straightforward administrative task continue to create such painful and costly distractions?” The answer lies in the way warranty is intertwined with service and how its result is a product of service policies, operations, and procedures. Significant amounts of revenue, the complexity of methods, the expiration of payments, the rigidness of interfaces, factory required documentation, and its association with a customer-driven highly technical profit center make warranty claims processing a system likely to fail. Most dealerships are only an employee change away from a collapse in their warranty claims processing system with costly implications.
Amounts of revenue: Depending on the make and location of the dealership warranty claims processing may result in as much as 60% of gross service sales. At a standard 30% – 40% mix warranty claims processing is by far the most significant single revenue source in the service department. Even when systems are intact and run as expected, small claim losses add up to thousands of dollars, and liabilities go unnoticed.
The complexity of methods: Rarely does anyone print the manuals anymore. Several years ago, the manufacturers would ship updates to their warranty policy manual or policies procedures manual each year. The size of these publications themselves was daunting to behold, but they are just the beginning of the complexity of warranty. The manuals do not address the process by which an administrator must navigate to enter a warranty claim, correct a reject, or make an appeal. Nor do they include the many variations related to technical service bulletins, the latest restricted procedures, or the most recent special service announcement. Add to that the complexities of body shop claims, transportation claims, and extended care warranty claims. Frequently the submissions require repair procedure knowledge coupled with good old-fashioned common sense.
The expiration of payments: Most valuable items have variations of value; few possessions go from something of value to nothing of value in a matter of days. However, that is precisely what warranty claims processing does. Each manufacturer has its own set of rules for the length of time it will honor a warranty claim, and it also varies by state law. In some cases, there are things you can do to collect expired claims. However, the process is rarely defined by any manufacturer’s publications. Frequently it requires the cashing in of favors, and if you are fortunate, the effort results in a partial payment. The fact remains that tens of millions of dollars in warranty claims expire and go uncollected each year.
The rigidness of interfaces: With 30,000 parts on the average new vehicle and multiple types of warranty coverages there are a plethora of repair possibilities. The best any automated system can do is to account for the most common repairs and concerns. To accommodate for all this versatility the systems and the codes they rely on are not capable of providing accurate responses to all issues. For instance, a simple incorrect code or date could give completely inaccurate reject reactions from the automated system. Proper warranty claims processing depends on the experience of the warranty administrator understanding these systems and their inadequacies. Unfortunately, the only way to gain this knowledge is with the proper training, aptitude, time, and volume of submissions.
Required documentation: No one who indeed puts the customer first by frequently allowing interruptions of their daily activities, to stop and resolve customer concerns, enjoys being held responsible for what can appear as unnecessary red tape and bureaucracy. However, when you change your perspective and recognize warranty claims processing from the manufacturer’s point of view, they are taking a considerable risk. Each dealership could, in essence, write themselves a check from the factories account. Manufacturers require that specific processes are followed to protect themselves from possible fraud and abuse. Be aware that their exposure is not only to the dealer but to every service employee who can write a repair order, apply labor, or charge out a part. Most factory requirements are in place to ensure that management is verifying and controlling expenses claimed by their employees.
Association: Warranty claims processing is the caboose on the service department train, not the engine. At any time during regular daily processes when things go wrong, uncollected revenues can travel towards the rear of the train and end up in the final resting place The Warranty Schedule. Here is a list of items that frequently result in warranty claims processing concerns.
- Management turnover
- Poor RO documentation
- Improper dispatching
- Advisor turnover
- Lines in the service lane
- Poor customer communication
- Technicians coding labor*
- Warranty Administrator absent*
- Improper accounting practices*
- Weak parts return policies
- Inexperienced warranty administrator errors*
- Poor PDI reception processes