Activity-based costing and process benchmarking: an application to general insurance

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.