Auto warranty and driving patterns

Automobile warranty coverage is typically limited by age as well as mileage. However, the age is known for all sold vehicles at all times, but mileage is only observed for a vehicle with a claim and only at the time of the claim. We study the relationship between the expected number/cost of warranty claims and the driving patterns. Within a nonparametric framework, we account for the rate of mileage accumulation and propose a measure for the variability of this rate over a vehicle's observable life. We illustrate the ideas with real warranty data and comment on the relationship between the expected number/cost of warranty claims and the driving patterns using results adjusted/unadjusted for withdrawals from the warranty coverage due to mileage accumulation.

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