Cost and cycle time reduction in the service industry: a field study of insurance claims operation

The issues of cycle time management and cost reduction in the service industry are the concerns of the empirical study presented in this paper. In specific, we study the claims handling process which is one of the most essential and critical functions of an insurance company. The objective of our study is to gain an understanding of the impact of various operational decisions, such as assignment of claims to claims analysts, choice of claims handling method and involvement of an attorney on the cycle time and cost performance of claims operation. The field study presented in this paper was conducted at a major insurance company where we collected and analysed a large dataset on claims characteristics, cost, cycle time and operational decisions of claims handling process. The paper identifies the important claim characteristics that drive the cost and cycle time performance in settling a claim and concludes with a discussion on the managerial implications of the field study.