Process Activity Analysis for a Service Company Statewide Insurance Company has a process for making payments on insurance claims as follows: An activity analysis revealed that the cost of these activities was as follows: Receiving claim $120,000 Adjusting claim 260,000 Paying claim 120,000 Total $500,000 This process includes only the cost of processing the claim payments, not the actual amount of the claim payments. The adjusting activity involves verifying and estimating the amount of the claim and is variable to the number of claims adjusted. The process received, adjusted, and paid 2,000 claims during the period. All claims were treated identically in this process. To improve the cost of this process, management has determined that claims should be segregated into two categories. Claims under $1,000 and claims greater than $1,000: claims under $1,000 would not be adjusted but would be accepted upon the insured’s evidence of claim. Claims above $1,000 would be adjusted. It is estimated that 80% of the claims are under $1,000 and would thus be paid without adjustment. It is also estimated that the additional effort to segregate claims would add 10% to the “receiving claim” activity cost. a. Develop a table showing the percent of individual activity cost to the total process cost. Statewide Insurance Company Individual activity cost to the total process cost Activity Cost Percent of Total Process Receiving claim $ % Adjusting claim % Paying claim % Total $ % b. Determine the average total process cost per claim payment, assuming 2,000 total claims.$ per paid claim c. Prepare a table showing the changes in the activity costs as a result of the changes proposed by management. If an amount box does not require an entry, leave it blank. Use the minus sign to indicate an additional cost in the last column. Statewide Insurance Company Changes in the activity costs Activity Activity Cost Prior to Improvement Activity Cost After Improvement Activity Cost Savings (Cost) Receiving claim $ $ $ Adjusting claim Paying claim Total $ $ $ d. Estimate the average cost per claim payment, assuming that the changes proposed by management are enacted for 2,000 total claims.$ per paid claim
Process Activity Analysis for a Service Company
Statewide Insurance Company has a process for making payments on insurance claims as follows:
An activity analysis revealed that the cost of these activities was as follows:
| Receiving claim | $120,000 |
| Adjusting claim | 260,000 |
| Paying claim | 120,000 |
| Total | $500,000 |
This process includes only the cost of processing the claim payments, not the actual amount of the claim payments. The adjusting activity involves verifying and estimating the amount of the claim and is variable to the number of claims adjusted.
The process received, adjusted, and paid 2,000 claims during the period. All claims were treated identically in this process.
To improve the cost of this process, management has determined that claims should be segregated into two categories. Claims under $1,000 and claims greater than $1,000: claims under $1,000 would not be adjusted but would be accepted upon the insured’s evidence of claim. Claims above $1,000 would be adjusted. It is estimated that 80% of the claims are under $1,000 and would thus be paid without adjustment. It is also estimated that the additional effort to segregate claims would add 10% to the “receiving claim” activity cost.
a. Develop a table showing the percent of individual activity cost to the total
| Statewide Insurance Company | ||
| Individual activity cost to the total process cost | ||
| Activity | Cost | Percent of Total Process |
| Receiving claim | $ | % |
| Adjusting claim | % | |
| Paying claim | % | |
| Total | $ | % |
b. Determine the
$ per paid claim
c. Prepare a table showing the changes in the activity costs as a result of the changes proposed by management. If an amount box does not require an entry, leave it blank. Use the minus sign to indicate an additional cost in the last column.
| Statewide Insurance Company | |||
| Changes in the activity costs | |||
| Activity | Activity Cost Prior to Improvement | Activity Cost After Improvement | Activity Cost Savings (Cost) |
| Receiving claim | $ | $ | $ |
| Adjusting claim | |||
| Paying claim | |||
| Total | $ | $ | $ |
d. Estimate the average cost per claim payment, assuming that the changes proposed by management are enacted for 2,000 total claims.
$ per paid claim
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