Development of a new Pro-rata warranty policy for estimating costs

In today’s fiercely competitive products market, product warranty has started playing an important role. Currently, a large number of products are being sold with warranty policies in the form of free replacement warranty, pro-rata warranty, and combined warranty policies. Pro-rata warranties are relatively a complex concept. The modeling of failures during the warranty period and the costs for such policies are complex since the rectification costs are random variables and inflation and deflation rates affect on these costs. This paper focuses on developing a new Pro-rata warranty policy and models for predicting failures and estimating costs for this policy.