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Activity‐based costing and process benchmarking An application to general insurance

Activity‐based costing and process benchmarking An application to general insurance Purpose – Aim of this paper is to set some cost benchmarks for the cost of processing an insurance application and processing a claim. Design/methodology/approach – Activity‐based costing (ABC) model. The ABC model was applied to a unified business process and set the benchmarks for the cost of processing an application and a claim. Findings – The average cost per application is approximately AUD221 and the cost of processing a claim is AUD260. The cost of support functions is higher in the case of application processing and back office direct costs are higher in the case of claim processing. Research limitations/implications – The success of benchmarking exercises depends on the cooperation of the benchmarking partners. Furthermore, the benchmarks can be more accurate when ABC is applied to the business processes. Most insurance providers are yet to adopt the ABC model. Originality/value – This paper introduces the breakdown of the processing costs for general insurance. The breakdown is given on the basis of direct and indirect costs as well as front office, back office and support function costs. To the best of author's knowledge this is the first application of process benchmarking to the insurance industry. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Benchmarking: An International Journal Emerald Publishing

Activity‐based costing and process benchmarking An application to general insurance

Benchmarking: An International Journal , Volume 15 (2): 11 – Apr 11, 2008

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Publisher
Emerald Publishing
Copyright
Copyright © 2008 Emerald Group Publishing Limited. All rights reserved.
ISSN
1463-5771
DOI
10.1108/14635770810864857
Publisher site
See Article on Publisher Site

Abstract

Purpose – Aim of this paper is to set some cost benchmarks for the cost of processing an insurance application and processing a claim. Design/methodology/approach – Activity‐based costing (ABC) model. The ABC model was applied to a unified business process and set the benchmarks for the cost of processing an application and a claim. Findings – The average cost per application is approximately AUD221 and the cost of processing a claim is AUD260. The cost of support functions is higher in the case of application processing and back office direct costs are higher in the case of claim processing. Research limitations/implications – The success of benchmarking exercises depends on the cooperation of the benchmarking partners. Furthermore, the benchmarks can be more accurate when ABC is applied to the business processes. Most insurance providers are yet to adopt the ABC model. Originality/value – This paper introduces the breakdown of the processing costs for general insurance. The breakdown is given on the basis of direct and indirect costs as well as front office, back office and support function costs. To the best of author's knowledge this is the first application of process benchmarking to the insurance industry.

Journal

Benchmarking: An International JournalEmerald Publishing

Published: Apr 11, 2008

Keywords: Activity based costs; Benchmarking; Insurance; Organizational processes

References