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Manzana Insurance-Fruitvale Branch

In: Business and Management

Submitted By chihchah
Words 1975
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Chihab EL ALAOUI Student ID: 118989 Title: Case of the Manzana Insurance Fruitvale Branch

1. Describe and evaluate Manzana's operations strategy
Manzana has an operations strategy focusing on autonomy among branch offices that shows in the case operational inefficiencies, and it considers each branch as a separate profit and loss center with the space to underwrite insurance, collect premiums and settle claims within territory. Manzana has generally 3 territories of operations, where the company does not deal directly with public, instead of that it operates through 200 independent agents whom are working with other companies, but in case of Manzana the agents are dealing with 4 departments that cooperate with them from within to process the policies whom in order based on the policy process: Distribution, Underwriting, Rating and Policy Writing. The major areas of concern includes: high Turnaround time (TAT), the turnaround time is the total time taken to process a request. At present Manzana’s TAT is around six days compared to one day TAT of its major competitor Golden Gate Insurance firm. The inappropriate work force distribution at Manzana makes some workers to be idle and others being stretched to work, making the system inefficient. There is significant proportion of policies which are being renewed late, this is primarily because the policies which are required to be renewed (RERUN) are being intimated to the customer only in the last day which results in loss of business. The various departments in Manzana have different priorities resulting in backlog of policies
2. What determines the profitability of a given "product line" (i.e., RUNs vs. RAPs vs. RERUNs vs. RAINSs) for the Manzana Fruitvale Branch?
In Fruitvale request are given priority as per the incentives associated with them. Under Writing team is processing in the order RUN, RAP, RAIN and RERUN. Since RUN and RAP are processed first at the expense of RERUN there is delay in processing of RERUN and hence many renewals request are either getting lost or getting delayed. FIFO basis is followed within these two priority classes.
RERUNs are the highest number of requests that come into the system, but since the profit margin of RUNs is higher when compared to RERUNs, they were given the lowest priority which had resulted in renewal loss rate of 47%. This variation in the workload and also in the priority of carrying out processes like RUN, RERUN, RAP and RAIN is resulting in high turnaround time as one cannot follow a standard process flow. For example, most underwriters’ process RUNs and RAPs first before working on RERUNs and RAINs even though Company policy was to use a first-in-first-out (FIFO) system. This has resulted in high turnaround time for renewals resulting loss of renewal policies. This turnaround time can be reduced by eliminating the variations in the workload and priority in carrying out the processes.
3. What are the important measures of operating performance for the Fruitvale Branch? Why have profits been deteriorating over the past year?
The inefficiencies of the organization of the organization results in an increased TAT. We shall now look at the factors increasing TAT. * Prioritizing:
Through the company’s policy to use FIFO system at the stage of the underwriting process, RUNs and RAPs are given more priority over RAIN and RERUNs. This is because of the new policies are the most profitable ones and also the general perception that customers will anyway renew their new policies. Also the company’s compensation policy is to pay incentive payment for new policies written. This results in increased backlog of RERUNs and sending notice to agents in last day. * Underutilization:
The capacity utilization calculation will be shown in this table below: | Review and Distribution | Underwriting | Rating | Policy Writing | Arrival Rate | 40 | 40 | 40 | 40 | Average time per Request (min.) | 40 | 30 | 70 | 55 | Total time Required (hrs.) | 26.67 | 20.00 | 46.67 | 27.50 | Personnel available | 4 | 3 | 8 | 5 | Capacity available (hrs. @ 7.5 hrs./day) | 30.00 | 22.50 | 60.00 | 37.50 | Capacity Utilization | 88.9% | 88.9% | 77.78% | 73.33% |

Capacity utilization for the Underwriting department: | Territory 1 | Territory 2 | Territory 3 | Number of requests(H1 ’91) | 1867 | 1657 | 1430 | Request per day (120 days total) | 15.6 | 13.8 | 11.9 | Time required (using 28.4 min each) | 443.04 | 391.92 | 337.96 | Utilization (using 450mins available) | 98.4% | 87% | 75% |

We can see that the capacity utilization is below 80% for rating and policy writers. The reason for the same can be increased waiting time and uneven pattern of loads given by utilization team. It is clear that territory 1 is running close to its peak capacity, which is unsustainable, and no doubt results in substantial delays for some requests, especially RERUNs and RAINs which are down the priority order. Even territory 2 is being stretched at an unsustainable level. Only territory 3 is running at an effective capacity. As suspected, the underwriters are indeed the bottleneck in the process, with Exhibit 3 confirming that there are more requests at this stage than everywhere else put together, even more so for RAINs and RERUNs, and that this is the most time-consuming step at 3.4 days. Hence we can say that the strategy being followed by the company in allocating different territories for different teams might not be the correct strategy for the company in its present condition to follow. * Loss of Renewals:
According to the data given, over the last quarters, the company has some of 42.9% of renewals processed late and 44.5% of renewals lost.

| 1989 | 1990 | 1991 (6 months) | Renewals lost rate | 16.4% | 34.4% | 44.5% | Branch Profit (Loss) | $6,656 | $2,785 | ($295) |
When the company gives very short notice for RERUNS to agents, they tend to recommend other insurance agencies to clients. The inability of the company to provide timely processing of RERUNs in causing the loss of a large volume of valuable customer base, thus reducing its revenue and hence the profitability. We calculated the average revenue of each request type from 1989 to 1991 and find the weight from 1989 to 1991: Gross Premium | Average revenue earned by quarter (in thousands) | Percentage of total revenue | New policies | $1,713.50 | 0.20 | Endorsements | 122.8 | 0.01 | Renewals | 6,749 | 0.79 |
It shows that total revenue consist of a large proportion of Renewal although renewal is not the most profitable request. In practice, employees process RERUN at last the company is neglecting the most profitable type of request and instead they pay loss rate. Also we calculated the average premium by each product request for your reference | RUN | RAIN | RERUN | Premiums/Request (in thousands) | 6.09 | 0.58 | 5.52 | * Very low conversion of RAPs to RUNs:
Though the conversion rate of RAP to RUN is only 15%, it had been given a high preference, next only to RUN and also they take up a significant time for processing. But, then considering the conversion percentage, this priority doesn’t sound valid. Finally, we can summarize that the Turn-Around Time (TAT) which is the total time required for complete processing of one policy. And according to the case, TAT is calculated and found to be 8.2 days. However, this calculation in Exhibit 3 is based on time it takes to process 95% of all request of a particular type for each operating step. The result is very conservative approach that overstates the actual figure. Using Little’s Law we can calculate an alternative TAT of:
TAT= (82 requests in system) / (39 requests per day) = 2.1 day.

4. What are your recommendations for improving the operating performance of the Branch? How should Manzana respond to the competitive challenge posed by Golden Gate?
To accomplish objectives we need to address. First one is to decrease turnaround time in order to lower the lateness rate of request handling. The other one is to find out an efficient scheduling process to handle appropriately various types of requests. Our recommendations as below: * Decreasing variance of different departments
According to Table of Capacity Utilization, we can find that the variances in the four departments are considerable. Fruitvale branch really needs to allocate more workforces DC and UW1 or assign idle workforce from other departments which can improve the efficiency of utility of existing workforce. To solve this problem, we think the branch should apply some flexible approach. For example, when there is a high inflow of requests to a particular UW team who feel tough to complete these requests on time, the other two teams should share some burden of that team. On the other hand, some department may have overstaffed which would cause low utilization. Policy writing is an example. So the branch thought that maintaining five people in PW department is not necessary since the average policy writing time had decreased greatly after installing computers. * Developing a flexible and balanced incentive program Even though FIFO is a companywide policy, many of its branches will focus on the insurance claims that generate higher profit than other claims. However, when we look at the table of gross profit, the revenue percentage of renewals is 79% while that of new policies is just 20%. So we can see that RERUNs is an important source of profit generation. We suggest that the branch should establish a system which can oversee the progress of all request files and give a warning sign when there are some files falling behind and probably unable to complete before due dates. The branch’s reward policies also need to make some adjustments instead of the current one of 25% for new policies and 7% for renewal.
On the other hand, productivity of individual employees is very important to improve efficiency of the whole process. Because these employees can handle a task faster and more accurate than ordinary employees. We think that the branch should monitor and record the performance of various departments periodically like weekly or monthly. The branch managers can decide which department should get bonus for good performance and which one should be penalized for poor work quality or late handling. * Different scheduling discipline and UW grouping
The company’s main competitor, Golden Gate, is promoting a guarantee that all requests will be completed within 1 day or charging a 10% late penalty per day. In order to fight the threat from Golden Gate, and to address the problems, we can consider using one of the following schedule disciplines: * First in first out: The company policy has required every branch to use the FIFO system to process every request in every stage. It seems to be fair to all customers. * Profit Rule: This is another feasible schedule discipline. The aim of this discipline is to maximize the total expected earnings. As a company, this is also the ultimate goal. . According to this rule, the schedule should be RERUN-RUN-RAP-RAIN. * Shortest processing time: we calculate the total processing time. According to SPT, the order should be RAP- RERUN-RAIN-RUN. SPT is aim to minimize the mean flow time, which is TAT. * Differentiate from competitor
The rate and service that insurance companies provide are becoming identical. To avoid direct fighting or get more competitive, company should differentiate themselves from others. There are two recommendations: * Build brand image: This could be done by making more advertisement. The aim is to let the public know your brand and build your brand image in their mind. Then customers will tell the agent that they prefer your company rather than the other. * Agent incentive program: If an old agent can successfully convince a new agent (agents that never attend to your company) to defect to your company, an incentive will be paid. Then more agents in your company, probably more customers you will have.…...

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