Content area
Full text
With fierce competition driving costs down and with customer demands rising, insurance organizations are using Activity-Based Management (ABM) to profitably grow their business.
Insurance is rapidly changing. From business lines that once included just a few generic products, a tremendous demand for customization is now driving the insurance industry to better understand and reduce its costs. Companies must use this improved knowledge of costs to plan new and innovative products. Insurance organizations are trying a number of initiatives such as reengineering, teams, outsourcing, quality, performance measures, and technology. The management system that unifies these techniques is Activity-Based Management (ABM).
The benefits of ABM to insurance organizations are:
Improves cash flow and profitability
Provides costing information to support strategy
Transfer resources from non-value activities to those activities customers value
Improves costing of products, customers, distribution channels, markets, underwriting and claims
Simplifies work and reduces workload
Shows where to redesign
Supports quality
Common language everyone can understand
Provides a better way to compensate teams and provide information for decision making
Supports a Balanced Scorecard/performance measures for cost, time, and customer satisfaction
Eliminates duplication
Activity Based Management (ABM) is a formal management system that:
supports excellence by compelling employees to understand their activities and how they contribute to achieving strategic objectives;
changes traditional management practices to emulate best practices;
establishes process controls to ensure consistently good performance;
supports continuous improvements by providing new insights into activities/tasks/episodes;
supports best practices and gives employees the tools to add value.
Activity-Based Management (ABM) is a methodology that measures the cost and performance of activities and business processes. ABM assigns resources to activities and activities to cost objects based on their use. ABM recognizes the causal relationships of cost drivers to activities. Activity-Based Costing is a subset of Activity-Based Management.
In traditional insurance accounting, cost accountants and actuaries allocated resources (i.e. salaries, rent, computer, and phone) to products. This allocation process often seemed arbitrary at best. It often appeared to management as a blackbox into which numbers are thrown.
Obtaining answers to why a department's allocation has increased is often difficult or unclear. Budgeting for these types of allocations can be difficult, time consuming, and often not beneficial to profitably growing the business.
ABM converts traditional financial statements into the activities...