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Claim processing
Improvement of claim processing cycle time
cycle time through
Lean Six Sigma methodology
171
Shri Ashok Sarkar
SQC and OR Division, Indian Statistical Institute, Mumbai, India
Arup Ranjan Mukhopadhyay
SQC and OR Division, Indian Statistical Institute, Kolkata, India, and
Sadhan Kumar Ghosh
Department of Mechanical Engineering, Jadavpur University, Kolkata, India

Abstract
Purpose – In the service sector, reduction of cycle time is one of the key issues. Among various
approaches, Lean Six Sigma became very popular as it provides the organisation the desired speed
with quality. The purpose of this paper is to present a Lean Six Sigma case study for reducing cycle
time in the claim settlement process in insurance or financial services.
Design/methodology/approach – This paper presents an application of Lean Six Sigma
methodology for claim settlement cycle time reduction in the insurance sector.
Findings – Lean Six Sigma is found to work very well in the insurance sector for reducing process
cycle time by carrying out process changes. Mixing statistical and analytical techniques helps to
improve the process speed and is very well demonstrated by Lean Six Sigma approach for service
organizations.
Originality/value – This paper utilizes Lean and Six Sigma approaches in process improvement
and presents an application. The main idea behind this paper is to demonstrate how combining Lean
concepts/techniques with Six-Sigma methodology can speed up problem-solving approaches. Apart
from the paper’s value for managers, it can also help researchers to extend this for other areas of
business processes.
Keywords Six Sigma, Lean Six-Sigma, Regression, Cycle time, Process management,
Insurance companies
Paper type Case study

1. Introduction
In order to compete in the global business arena and explore ways to improve bottom
line, manufacturing/servicing organizations are looking for strategies for process
improvement. As a result, companies have experimented with different strategies for
process improvements. Strategies like business process reengineering (BPR), total
quality management (TQM), Lean, Six Sigma are quality and operations improvement
systems, oriented towards process improvement (Chiarini, 2011). The latest in this list
is Lean Six Sigma (LSS). In service sector, the focus on processes for business International Journal of Lean Six
improvement started with implementation of BPR. The rapid growth and popularity of Sigma
Vol. 4 No. 2, 2013
BPR in the early 1990s can be explained by the relative lack of success of many TQM pp. 171-183
initiatives (Näslund, 2008). However, as BPR failed to provide desired results, it became q Emerald Group Publishing Limited
2040-4166
just another among many “change management” philosophies (Dervitsiotis, 1998). DOI 10.1108/20401461311319347
IJLSS On the other hand, organizations realize that the potential of LSS methodology which
4,2 is a blend of Six Sigma approach and Lean techniques can enhance the process
effectiveness as well as efficiency (Antony et al., 2003). Lean is a philosophy that aims at
elimination of waste, i.e. unnecessary time, materials, and effort, with the goal that all
steps in a process add value from the customer’s perspective (Taylor, 2008). Invariably
the focus of Lean is on process flow. Six Sigma, on the other hand, is a concept designed
172 to reduce process variation and thereby improve the overall effectiveness by defining,
measuring, analysing, improving, and controlling processes. As a result, when LSS
approach is taken, the process flow improves as well as waste reduces. The LSS
methodology not only reduces process waste, but also provides a frame work for overall
organizational cultural change (Summers, 2011).
The popularity of LSS in service sector for improving process performance is on the
rise. The reasons could be the improvement it delivered irrespective of process
complexity or it may be the reported savings of billions of rupees within a few years of
implementation. The LSS methodology adopts the well defined define-measure-analyse-
improve-control (DMAIC) improvement cycle of Six Sigma and the Lean tool and
techniques are synergized into the appropriate stages (Snee, 2010; George, 2002). Mostly
the LSS application starts with defining process flow either through supplier-
input-process-output-customer (SIPOC) or value stream map (VSM), identifying the
waste of different kinds and evolving action plan for elimination of such wasteful
endeavors. In order to draw the action plan, the LSS tool set is being used.
Although LSS looks for application of both Lean and Six Sigma tools, however the
reality is different. Many a time the improvement cycle involves current VSM, future
VSM and action taken to achieve the future VSM (Su et al., 2006). The rigor of Six Sigma
lacks in these applications. In particular, the process flow charting of different other
varieties like activity flow chart or deployment flow chart are inadequately made use of.
However, in order to identify the wastes generated in various processes, one needs
to delineate the process in detail, and find out whether the steps add value or not. The
VSM or SIPOC should be followed by detailed process map for waste identification.
The approach to be adopted to deal with a LSS problem in service processes with the
help of a judicious blend of both the Lean and Six Sigma techniques has been
demonstrated in this paper through a case example in an Indian insurance company.

2. The problem
The company has been dealing with the life insurance product and provides insurance
for the customer. One of the critical processes is settlement of insurance claim in case of
the unfortunate event of the death of the insured person. The claim settlement process
is directly affecting the company’s target of becoming number 1 player in the Indian
insurance sector and is demonstrated through the process linkage shown in Figure 1.
Any delay in settling the claim makes the claimant and their relative dissatisfied
and consequently such a situation has the potential to adversely affect the growth of
the business. The SIPOC of the claim settlement process is shown in Figure 2.
The process is as follows. Subsequent to receiving the information about the death of
the insured person, the company sends the condolence letter to the concerned claimant
(T1) and requests claimant to submit relevant document. The claimant arranges the
necessary documents and submits to the respective branch (T2). The documents are then
verified and sent to the head office (T3). The claim team studies it and takes a decision (T4)
 Claim processing
cycle time

173

Figure 1.
Linkage of business goal
and processes

Figure 2.
SIPOC of claim settlement
processes

and intimates the accounts to prepare the cheques (T5). Accounts department prepares
the cheque (T6) and then dispatches it to the respective branch (T7). The branch manager
then calls the claimants and hands over the cheque (T8). The claims that are declined are
not considered for claim settlement.
From the SIPOC, the process measure has been identified as the claim processing
cycle time, which in turn, depends on the processing time of the constituent
sub-processes. The operational definition of cycle time is as follows:
T ¼ claim processing cycle time, i.e. time taken from receipt of information about the
policy holders’ death to handing over the claim settlement cheque.
t1 ¼ time taken from receipt of information about the death to sending condolence
letter (T1).
IJLSS t2 ¼ time taken from sending condolence letter to receipt of the relevant documents
4,2 (T2).
t3 ¼ time taken from receipt of the relevant documents to sending those documents to
the head office (T3).
t4 ¼ time taken from sending the documents to the head office to the decision on claim
174 settlement (T4).
t5 ¼ time taken between the decision on claim settlement and intimation to accounts
for cheque preparation (T5).
t6 ¼ time taken between intimation to the accounts for cheque preparation and actual
cheque preparation (T6).
t7 ¼ time taken after cheque preparation for sending it to the respective branch (T7).
t8 ¼ time taken in between arrival of the cheque at the respective branch and handing
over to the claimants (T8).
It is obvious that the claim
P cycle time (T) is the summation of all the cycle times of
other activities, i.e. T ¼ 8i¼1 t i
However, the cycle time t2 is out of the purview of the settlement team as it is totally
dependent on the activism of the claimants. It is to be noted that the processing time is
defined as the time taken to process a claim on receipt of documents, i.e. from T2 to T8.
However, the management can educate or inform the claimant regarding the requirements
for faster processing. Whosoever is accountable for faster cycle time (T), either claimant
for the component t2 or the settlement team for the other time components, the target for T
is fixed for the maximum period of 30 days keeping in mind the corresponding regulatory
requirements as well as the urgency on the part of the claimants. Keeping in view the
above, two approaches have been adopted to reduce the cycle time. While for t2, the
approach of failure mode and effect analysis (FMEA) has been adopted, for the remaining
time components ti (i ¼ 1-8 but i – 2), the stepwise regression technique has been adopted
to identify and reduce the critical time component(s) to reduce, in turn, the overall cycle
time.

3. Identification of critical sub-processes for improvement

Once the process is identified, the next step is to find out the present status along with all
the sub-processes. Based on the present status one needs to prioritize the sub-processes
for improvement. This is necessary because all the sub-processes cannot be taken up
simultaneously for improvement due to different geographical locations and its
not-so-important contribution to overall cycle time at the cost of possibly immense effort
and precious time spent for such effort.
Data have been collected for 84 claimants on processing time for each step. The cycle
time is measured as defined in Section 2. The stability of the process has been verified
through Grubbs’ (1969) test for detection of outlier. The value of the test statistic (z) is
found to be 3.03 against the critical value of 3.32 for significance level 0.05 (two-sided).
The corresponding histogram for the cycle time, which is found to be unimodal and
fairly symmetric, is shown in Figure 3.
 25 Claim processing
cycle time
20
Frequency

15
175
10

0
40 80 120 160 Figure 3.
Histogram of cycle time
Cycle time

In order to assess the process performance, the distribution of cycle time has been
explored. Several distributions have been tried and among them it has been observed
that normal distribution fits the data quite well. The Anderson-Darling test (Stephens,
1974), for testing Normal distribution, has been carried out and is shown in Figure 4.
Since the p-value is greater than 0.05, we conclude that there is not enough evidence in
this data set to prove the data are not normally distributed. So for all practical purposes
the cycle time can be considered to be following Normal distribution.
By taking 30 days as the upper specification limit, the process performance has been
evaluated. It has been found that 97.41 per cent of the claims have not been processed
within the statutorily required upper specification limit of 30 days. The average cycle
time has been found to be 90.25 days. The corresponding performance analysis of the
process is shown in Figure 5.
In order to identify the most critical steps having a bearing on the overall cycle time,
summary statistics of each sub-process are computed and presented in Table I.

Figure 4.
Normal distribution fitting
for cycle time
IJLSS
4,2

176

Figure 5.
Performance analysis
for cycle time

Processing time Observation Average Standard deviation CV% Median

t1 84 6.83 3.321 48.61 6

t2 84 45.11 26.62 59.02 39.5
t3 84 2.19 1.682 76.81 1
t4 84 7.04 5.436 77.27 5
t5 84 9.07 11.040 121.71 2.5
t6 84 6.30 4.121 65.44 5
Table I. t7 84 2.20 1.369 62.16 2
Summary statistics t8 84 11.51 8.359 72.61 8
of processing time Cycle time or turn
of sub-processes around time (t1-t8) 84 90.25 30.96 34.31 93

From Table I we can observe that the most influencing variable with regard to the
central tendencies (average and median) is t2; which, as mentioned earlier, depends on
the claimants and their family members. The other important variables are t5 and t8
which remain predominantly under the control of the process owner. The importance of
t5 can be anticipated from its high coefficient of variation (CV) %. On the contrary, the
underlying cause that can be ascribed to the importance of t8 is its relatively higher
average coupled with higher standard deviation. Quite naturally, the CV% of t8 is not so
high being influenced by its higher average. Therefore, the selection of the critical
sub-processes based on the summary statistics of the different processing times
becomes a little bit smoky. Consequently, to identify the critical sub-process in a crystal
clear manner, the stepwise regression technique has been used (Sarkar et al., 2011) and
the result thereof is presented in Table II. It may be relevant to mention here that
stepwise regression is probably the most widely used variable selection technique.
The procedure iteratively constructs a sequence of regression models (four in the present
case) by adding or removing variables at each step. The criterion for adding or removing
a variable at any step is usually expressed in terms of a partial F-test (Montgomery and
Runger, 2010).
From Table II it can be concluded that the variable t5, t8, t4 and t6 are the most
important variables in order of priority. The result thus found by carrying out stepwise
 Claim processing
Step 1 2 3 4
cycle time
Constant 36.513 24.404 16.385 9.355
t5 0.95 0.96 1.06 1.03
t-value 8.12 12.21 17.31 24.58
p-value 0.00 0.00 0.00 0.00
t8 1.04 1.07 1.05 177
t-value 10.00 13.56 19.37
p-value 0.00 0.00 0.00
t4 0.97 1.08
t-value 7.78 12.58
p-value 0.00 0.00
t6 1.07
t-value 9.57
p-value 0.00
S 11.8 7.94 6.02 4.13 Table II.
R2 44.55 75.17 85.87 93.46 Result of stepwise
R 2adj 43.87 74.56 85.34 93.13 regression

regression analysis has been validated through sensitivity analysis using Monte-Carlo
simulation and the contribution of t5, t8, t4 and t6 are found to be 43.56, 30.00, 12.86 and
6.89 per cent, respectively.
Subsequently, to address the issue pertaining to cycle time reduction, it has been
decided to resort to process mapping for carrying out further analysis of the
underlying processes associated with these four variables. For the process associated
with the variable t2, it has been planned to carry out the root cause analysis (RCA).

4. Analysis of the sub-processes

The activity flow chart has been carried out for all the selected sub-processes.
However, for the purpose of demonstration for better comprehension, the activity flow
chart of the “cheque handover or disbursement (t8)” sub-process is shown in Figure 6.
The activity flow chart has been validated by walking around the process and the
associated information on delay has been gathered. The two basic reasons for delay
that have been found through this endeavour are mentioned in the following:
(1) Time taken by claimant in submitting proof. It has been found that the claimants are
taking on an average seven days to submit the documents after being intimated.
(2) Authentication of proofs submitted. It has also been found that in about
50 per cent of the cases the requisite authentication proofs are not available with
the claimants.

Similarly the other three processes have also been analysed and the reasons for delays
thereof have been identified and validated by critical examination of the processes
through walking around. The reasons thus found and shown through Figure 7, are
mentioned in the following:
.
more time taken to send intimation letters to the head office;
.
more time taken to send condolence letters from the head office;
.
lack of clarity about the types of documents called for claim and disbursement;
IJLSS
4,2

178

Figure 6.
Activity flow chart
for disbursement

.
more time taken for arranging the documents submitted by the claimants;
.
beginning the processing of claims by the head office without receiving the
complete documents from the respective branches; and
.
more time taken in preparing the cheque by the accounts department.

The sub-process related to the variable t2 dealing with “document submission by the
claimants” has been analysed by using the technique of FMEA. The outcome thus
found is provided in Table III.
It may be worthwhile to note in the context of FMEA that those causes are
considered for which adequate management control can be exercised. The other causes,
originated from the claimants, have not been analysed. The occurrence rating has been
given based on the actual sample observations from the process.

5. Improvement action
A brainstorming session has been conducted by the team along with all the stakeholders
of the processes to identify the solutions for the selected root causes. During this
 Pareto Chart of Reason Claim processing
300 cycle time
100
250
80
200
Occurance

179

Percent
60
150

40
100

50 20

0 0
d d e ed t y s f r er
e e u en la nt of rly try rie th
Reason ay
e l ay
e l iss c eiv um de eme g pr ope en o u O
n e c n r t a C
rd rd tio nt r do tio rang itti imp
n
da in
tte ette tica e in ra r m ct lay
le L n u m t y p a
t a b e d
r r e e
io
n
ce uthe doc arif re en su mp co D
at l en A e c l u e p um y in sta In
ti m o e t f q oc ela ent
In nd pl ck o Che D
Co o m a D um
In
c L oc
D
Occurance 65 33 32 30 25 21 21 19 7 5 4 12 Figure 7.
Percent 23.7 12.0 11.7 10.9 9.1 7.7 7.7 6.9 2.6 1.8 1.5 4.4 Pareto chart
for various reason
Cum% 23.7 35.8 47.4 58.4 67.5 75.2 82.8 89.8 92.3 94.2 95.6 100.0

Potential
Potential Potential cause(s)/ Current
Process function/ failure effect of mechanism(s) process
requirements mode failure SEV of failure OCC controls DET RPN

Submission of 9
documents
Submission Submitted Delay in 8 Documents are 2 Condolence 2 36
within seven after claim not clearly letter
days seven settlement mentioned indicates
days the list
Submission of Wrong Non meeting 9 Guidance not 7 Provided if 8 504
correct document statutory provided in asked by
documents submitted requirements collecting claimant Table III.
documents Process FMEA for the
Incorrect/old 9 No 8 648 sub-process – “document
list tracking submission by the
mechanism claimants”

discussion, the solutions have been identified and documented for all the ten root causes
thus found. The corresponding solutions are given in Table IV.
A risk analysis has been done for all the identified solutions. No risk is found to be
associated with the identified solutions. An implementation plan, has been prepared
IJLSS
Sr no. Root cause Solution
4,2
1 Claimant is not informed Preformatted standard document
requirement letter to be delivered to the
customer over the desk at the time of
submission of intimation letter
180 2 All documents not submitted/incomplete Preformatted standard document
supportive documents requirement letter to be delivered to the
customer over the desk at the time of
submission of intimation letter
Condolence letter will be sent along with
further requirement of documents
Follow up by branch operations after five
days
3 Lack of adequate document proof Follow up by branch operations
Assistance regarding acquiring documents
4 Priority by branch ops Detailed process will be in place
Maintain claim pendency calculator
5 No follow up by branch Detailed process will be in place
Maintain claim pendency calculator
6 Time taken by claimant to submit the proofs Follow up by branch operations
Assistance regarding acquiring documents
7 Requirement of extra documents/FR Condolence letter will be sent along with
further requirement of documents
8 Documents submitted after a long period Follow up by branch operations
Assistance regarding acquiring documents
9 Authentication of proof submitted Verification of original documents
Table IV. 10 Data entry not correct Intimation letter is preformatted which will
Solution for validated thereby contain all the information pertaining
root causes to claimant contactibility

with details of action plans, responsibilities assigned and the target date for
completion.
The reduction of cycle time achieved after implementing the solution has been
found to be substantial in nature. The extent of compliance with respect to the deadline
of 30 days for claim settlement has increased from 3 to 95 per cent. Figure 8 shows a
visual on the extent of improvement.

6. Sustainability of results
In order to sustain the results, the process flow charts have been modified in line with
the implemented solutions. The modified process flow chart is shown in Figure 9.
This modified process flow chart has been communicated to the respective branches
for necessary adherence. The following documents have been modified for ease of
claim settlement and incorporated in the standard operating procedure:
.
claim intimation letter;
.
the relevant documents required along with the condolence letter in case of
natural death; and
.
the relevant documents required along with the condolence letter in case of
unnatural death like accidental, suicidal and murder related death.
 Claim processing
cycle time

181

Figure 8.
Compliance percent
during the project

In order to monitor the overall claim settlement process, claim pendency calculator
(CPC) has been developed in MS-Excel for monitoring and ascertaining the claim status
by the head office. In order to systematise the process, the corresponding responsibilities
have been redefined for the branches, claim settlement team and refund team.

7. Benefits
The intangible benefits thus accrued are listed below:
.
increase in customer satisfaction;
.
increase in business reputation; and
.
scope of new business generation.

A conservative estimate has been made regarding the following:

.
The savings related to the penalty charges paid to the statutory body, for
non-compliance of claim settlement after 30 days. This is estimated based on the
previous loss/penalty paid by the organization in not meeting the requirements.
.
The reduction in operational cost of the branches by resorting to the practice of
collating and despatching the documents together instead of by part.

The estimate of the corresponding saving has been worked out to be INR 35 lakhs per
annum.

8. Conclusion
Through this paper we present a method for identification of the critical sub-processes
and for establishing their inter-dependence. The pertinent case example amply
demonstrates the effectiveness of the application of tools in the form of process mapping
and FMEA to help reduce the cycle time.
IJLSS
4,2

182

Figure 9.
Modified process
flow chart

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About the authors

Shri Ashok Sarkar is a Technical Officer in the Indian Statistical Institute, Mumbai. He has a rich
experience in implementation of quality initiatives, e.g. Six Sigma, Lean Six Sigma, SPC, Design
of Experiments, in various organisations over a period of the last two decades. His areas of
research interest are issues pertaining to implementation of operations management across any
organisation. Shri Ashok Sarkar is the corresponding author and can be contacted at: sarkar.
ashok@gmail.com
Dr Arup Ranjan Mukhopadhyay is working at present as the Senior Technical Officer in the
Indian Statistical Institute, Kolkata, India. He earned his doctorate in Six Sigma from Jadavpur
University in Kolkata. He has published many articles and papers in different national and
international journals of repute. His job consists of teaching, consultancy, training and applied
research.
Dr Sadhan Kumar Ghosh is a Professor in the Mechanical Engineering Department of
Jadavpur University. He earned his Doctorate in Engineering from Jadavpur University. He also
acts as the coordinator for the activities of the Center for Quality Management Systems at
Jadavpur University.

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