Process Activity Analysis for a Service Company Statewide Insurance Company has a process for making payments on insurance claims as follows: Receiving Adjusting Claim Paying Claim Claim An activity analysis revealed that the cost of these activities was as follows: $92,400 400,400 Receiving claim Adjusting claim Paying claim Total 123,200 $616,000 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 daims adjusted. The process received, adjusted, and paid 7,700 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 70% 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 "recelving claim" activity cost. a. Develop a table showing the percent of individual activity cost to the total process cost. Round the percents to the nearest whole number, if required. Statewide Insurance Company Individual activity cost to the total process cost Activities Activity Cost Percent of Total Process Receiving claim $ Adjusting claim Paying claim Total b. Determine the average total process cost per claim payment, assuming 7,700 total claims. Round to the nearest whole dollar 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 70% 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. Round the percents to the nearest whole number, if required. Statewide Insurance Company Individual activity cost to the total process cost Activities Activity Cost Percent of Total Process % Receiving claim $ Adjusting claim 0% Paying claim % Total % b. Determine the average total process cost per claim payment, assuming 7,700 total claims. Round to the nearest whole dollar. $ 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 is zero, leave the entry box blank. Use the minus sign to indicate an additional cost in the last column. Statewide Insurance Company Changes in the activity costs Activity Cost After Impi Activity Cost Savir Activity Cost Prior Activities to Improvement Receiving claim $ Adjusting claim Paying claim Totals $ d. Estimate the average cost per claim payment, assuming that the changes proposed by management are enacted for 7,700 total claims. Round to the nearest cent. per paid claim
