Page 26 - Cost

Cost Competitiveness

C. Te Impact of Activity Based Costing on Insurance Company’s Performance

Backdrop:

Sun Life Insurance is an international insurance company in Canada. Several issues have led Sun
Life to undertake the implementation of an Activity Based Costing (ABC) analysis. Increased
competition, the introduction of new computing technology, and increasing client demands
have caused margins to decrease and costs to raise. Te increased costs and decreased per unit
revenue have pressured management to seek to reduce costs signifcantly to maintain proftable
operating results.

Objective:

• Cost Reduction
• Performance Evaluation
• Sustainability of business

Methodology:

Te ABC system implemented within Sun Life Group Claims has helped to assess the "value" or
utility of all the activities performed within group claims and realize signifcant reductions in
operational costs within the claims processing areas. Sun Life has been able to perform extensive
benchmarking analysis to determine how efcient and efective they are, compared with where
they can be and has shown management where to concentrate the process improvement
initiatives.

Applicability:

If Activity Based Costing can be applied in the Insurance sector of India, it would prove to be a
cost efective approach for the following reasons:
• Reduce operating costs.
• Time management.
• Better settlement of claims.
• Benchmarking.
• Facilitate in Decision-making purpose.
• Better business performance.
• Business sustainability.

The Institute of Cost Accountants of India www.icmai.in 26