Vehicle maintenance warranties, including third-party aftermarket agreements, are a major source of chargeback claims for insurance and auto maintenance providers. The reason why, comes down to two factors, the dependence on paper transactions and lack of clarity on what is covered, including recurring billing.
Chargeback Gurus represents merchants around the world in their efforts to fight chargebacks and reclaim lost revenue, this includes automotive insurance and related businesses. Our data gleaned from analyzing their data surfaced the fact that 76 percent of all chargebacks are due to “friendly” fraud or canceled service.
The majority, 54 percent, of the chargeback claims are from fraud. But in this case, it can be more clearly classified as friendly fraud, because the customers are not necessarily trying to rip off insurance or service providers. More likely, the customers are not clear about how reoccurring payments are processed or how the warranty works, so when they see a charge, they may not recognize what it’s for and they’ll go directly to the bank to file a dispute.
Our research has uncovered that the signup and billing processes are creating customer confusion, leading to friendly fraud chargebacks. For example, when someone signs up for an extended warranty at a car dealership, the paper is signed, it is sent to the third-party provider. Once the paper is put in the mail, it becomes something similar to a mail order program where a third party is involved. The customer doesn’t necessarily know who the third party is, so this causes confusion, especially when they see billing coming in from an unknown entity.
Today we are conditioned that when we see an unknown charge on our credit card, we automatically call the card issuer and tell them that was not an authorized charge. Card issuers are also conditioned to lean heavily in support of its cardholders, so they will likely not hesitate to reverse the charge with the merchant.
The other area where the lack of transparency is showing up is the 24 percent of chargebacks filed for maintenance service that is canceled or disputed. Again, because insurance claims on extended warranties, when a customer goes into a service center for maintenance, the service provided is billed through a third-party company, often, again through the mail.
Additionally, because the terms of condition are often only available in the paperwork provided at the initial signup, the customer may not know what service is covered or the accompanying pricing. Because the customer isn’t seeing the third party involved, or the service specified or pricing, it causes confusion which may lead them to file chargebacks against the service provided.
Compounding the lack of transparency is the lack of robust customer service available from third-party warranty providers. Which includes not having 24-hour call service, digital resources or training about selling the policies at the dealership level.
The automotive industry needs to address this problem directly because it creates revenue losses all along the auto sales and maintenance channel. The immediate losses come from the chargebacks themselves. Warranty providers lose revenue from canceled or reversed transactions and maintenance providers lose money from merchandise, labor and service costs being lost from canceled payments. Also, the reputation of the dealership or maintenance provider is damaged because of the ill will created that drove a customer to file a chargeback dispute with their card provider.
The fix, however, for most of these chargeback issues are fairly simple:
- Make sure all terms and conditions, transactions, documentation and other informational customer resources are available online
- On mail/fax or digital transactions, make sure the credit card AVS and CVS match. This will help defend against chargeback claims
- Warranty providers should employ a root cause analyzer to see what is causing the chargebacks whether it is service, product or fraud
- Insurance providers need to have a robust, streamlined customer service process where customer calls are answered to help customers better understand their service options, pricing, and automatic charges
Most of what our data shows is that customers are simply confused and are not getting the information they need and the service they want. Because of that, customers are leveraging chargeback claims, which is harmful to the entire vehicle sales and service ecosystem. Chargebacks in this market are not going away, so it is imperative that insurance providers use the best methods at their disposal to stop these chargebacks from costing them their hard-earned revenue.