Manaza Insurancecase

CASE: MANZANA INSURANCE: FRUITVALE BRANCH (ABRIDGED) 1. Summary (Fruitvale branch situation- question 1):

This case was raised by Tom Jacobs, Manzana’s senior vice president to John Lombard, Fruitvale branch manager regarding a lot of complaints from agent because their turnaround time. Bill Pippin, assistant manager, was assigned to solve the problem during his boss, John Lombard, was in vacation. They are losing almost half of their renewal business every year. As the manager’s view, they are using more than enough people in their operation to handling approximately 40 total requests per day. However, a staff member’s workload is quite uneven over time: one day an underwriter might be stretched to the limit, a week later he may be idle. Recently, branch profitability was declining. The number of late renewals was at an all- time high, causing a dramatic rise in the renewal loss rate. Agents expected a renewed contract offer from Manzada on or before the expiration date of the old policy, and they were more likely to recommend other carriers to their customers when contract renewals were late. Furthermore, their turnaround time had jumped from about three days to more than five days. As the result, agents had begun to steer their clients to particular insurers on the basic of service. It’s so common for an agent to call and check the TAT, and refer to an insurer which takes less time per policy. Golden Gate announced their TAT is one working day on new policies, price quotes, and policy endorsements, with 10% discount in the event of delay.

2. Company overview:

Manzana Insurance was established in Sebastopol, California, in 1902, originally specialized in orchard and farm industry. In 1944, the company purchased the Santa Ana Underwriting, Casualty and Escrow Company. By 1953, Manzana had become the second largest home and commercial property insurer in California. In the 1970s, Manzana faced with the competition from Golden Gate Casualty, a new entrant in the home market whose corporate parent was one of the largest retailers in the world. In 1988, the two companies were in virtual tie for first place in the property insurance market. In 1989, Manzana was acquired by Banque du Soleil, a multinational financial services company, because of the so- called liability insurance crisis and new management was installed. In 1991, Manzana specialized in commercial insurance, with property insurance, making up 65% of its revenues, liability insurance 20%, and investment income and miscellaneous specialty lines constituting the remainder. Manzana operated through a network of relatively autonomous branch offices in California, Oregon, and Washington. The company treated each branch as a separate profit and loss center, with the authority to underwrite insurance, collect premiums, and settle claims within its territory. Sale force consisted of about 2000 independent agents who represented Manzana and other competing insurers. Fruitvale was one of Manzana’s smaller branches, with three underwriting teams supporting 76 agents in three geographic territories. 3. Causes and effects:

a. Turnaround time (TAT):
The company policy used a first- in- first- out (FIFO) system at each stage of the underwriting process. However, in practice, RUNs and RAPs were given priority over RAINs and RERUNs because renewals were considered less profitable than new policies. In addition, Manzana is already processing at a rate faster than the 95% Standard Completion Time (SCT) being used to calculate TAT (Exhibit 4). This causes Manzana to overstate TAT and hurt their chances to win business.

b. The loss of renewal policies:
RERUNs are currently held until the last day before their due date because the computer generated RERUNs were not released at that day in order to base the appraisal on the most up- to- date information. Agents expect a renewed contract offer before the expiration of the old policy. Late renewals result in a large renewal loss rate, representing a significant loss of business.

c. The large backlog of policies:
An inconsistent priority system among departments causes downstream problems. For example, the Rating Department is unable to address its backlog because of consistently late RERUNs from the Underwriting Department. 4. Problems in calculating TAT:

In Exhibit 3, the calculations indicate the total TAT as 8.2 days, but this assumes that the downstream activity waits for the upstream activity to complete before starting. For example, Underwriting starts work after 0.6 days during which time the distribution clerks clear their backlog. These calculations must also be based upon the assumption that policies move from one department to another in batches equal to total number of policies in the department. Also, the company uses 95% SCT per request to estimate processing time. I believe this is too conservative and the mean would be a more accurate basis for estimation purposes. 5. Recommendation:

The first solution is using pooling in peak time. Instead of having separate queue system, they could pool those departments to reduce waiting time in each queue that could lead to backlog. That solution might follow the company’s policy which is FIFO without any priority. The limitation was the company need to train staffs to broader their knowledge of each queue. The second solution is reducing staffs in the Rating and Policy Writing departments. Those are operating at 76% and 64% efficiency. The case states that rating had become "purely mechanical," and the amount of time taken to write a policy had decreased significantly in recent years. In addition, the automation of assembling policies and pricing risk will further reduce processing time. Analysis supports a reduction of rating staff by 24% and policy writing staff by 36%. This translates to a staff reduction of two employees in each department, which is reflected in the recommended organization chart above. This suggestion can reduce cost for the company.