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Manzana Insurance

CASE REPORT
GROUP 12

Gaurav Prasad (1511322)


Chetan Dixit (1511316)
Ankit Anand (1511308)
Shubham Shukla (1511359)
Avinash Kumar (1511314)
Debraj Mandal (1511318)

Manzana Insurance
SUMMARY
Background
The Fruitvale branch of Manzana Insurance has become one of the worst performing branches and
is facing huge competition from its rival Golden Gate. The branch profitability has decreased, the
backlog policies have increased and the number of new policies and endorsements appear to be
stagnating. In addition to this, the turnaround time for Manzana has been 6 days for the past year
where as for its competitor (Golden Gate) the turnaround time was 2 days with a promise of
reducing it to 1 day in the future. Thus, Fruitvale Branch looks needs to work a lot to combat its
competitor Golden Gate.

Description
The case studies the operating activities and the processing of commercial property insurance
policies at the Fruitvale branch, Manzana Insurance. These polices are processed by four
departments Review and Distribution, Underwriting, Rating and Policy Writing. In general, there
are four types of policy requests that are processed. These are

The new system recommended would focus on improving the operational efficiency of processing
policy requests and renewal. Also, the new system would focus on efficiency from an HR (Human
Resource) perspective, marketing perspective and operations perspective. It will also provide
strategy for tackling its competitor Golden Gate, which has eaten up on lot of Manzanas market
share.

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Manzana Insurance
PROBLEMS FACED BY MANZANA INSURANCE Fruitvale Branch
1.

Average actual turnaround time is more than its theoretical value.


Turnaround time refers to the time taken in processing of an insurance case, whether its a new

policy or a policy renewal case. They are quoting it as 8.2 days based on 95% SCT which appears
to be a worst case scenario and a conservative estimate of the actual TAT. The market is very
competitive with its rival Golden gate offering a turnaround time of 1 day.
From Exhibit 3, given number of backlog cases= 82
Total requests cleared per day= 40
Hence, Theoretical turnaround time= 82/40= 2.05
2.

Difference in work methodology of different teams.


The distribution clerks sorted insurance requests on a FIFO basis. However, underwriters sifted

through the case lot and serviced RUN and RAP cases before others, since those generated more
profit for the company. Rating department serviced cases on FIFO basis while policy writers, the last
stage of the process completed simpler cases first. This difference in work methods of successive
stages increased the number of backlog cases, and nullified the profit rationale as envisaged by
the company in the beginning.
3.

Loss (& Delay) of renewal requests.


After the geographical restructuring of the organization, there was a significant increase in the

number of lost policy renewal cases. As mentioned in Exhibit 7, this increased from 849/annum in
1989 to 926/6 months in 1991. This trend can also be attributed to the increment in the number of
backlog renewal cases in Manzana Insurance owing to the lower priority assigned to it. Since
renewals were given the lowest priority while processing insurances in this branch, the percentage
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Manzana Insurance
of late renewals had increased to a whopping 44% in the last quarter, compared to 20% in the
same quarter the previous year. When renewals are late, or lapsed, agents typically would advise
end customers to switch to rivals. This is exactly what was happening: the number of renewals at
the Fruitvale Branch had gone down by 13% over the last 1 year, and Golden Gate had nearly 40%
more renewals than Manzana, Fruitvale. The renewal loss rate had also gone up to 47%, compared
to 33% last year, same quarter.
4.

Salary structure of employees isnt conducive to profit increment.


As per the salary/plus incentive structure, senior employees in the company were paid a fixed

salary plus an incentive for new policies written over their established quotas. In Fruitvale branch,
all the underwriters and the branch manager were paid in this way and hence they tend to focus
on bringing new policies instead of servicing renewal cases. This was impacting the customer base
of company negatively.
5.

Workload distribution is not balanced


Workload on employees in different divisions was not equally distributed. Over the period,

inefficiencies in the overall process has increased. In spite of policies arriving at a fairly uniform rate
throughout the week, staff were often overworked and at times, they were sitting idle.
6.

Decreasing profitability

Due to above mentioned reasons, the overall profitability of Manzana-Fruitvale branch has been
steadily declining. In fact, it reported losses in the last 2 quarters. They were also facing an increased
competition from Golden gate and thus the overall profit margins were under downward pressure.

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Manzana Insurance
Process Flow of Manzana-Fruitvale
4 type of insurances were typically handled at Manzana Fruitvale branch:

RUN

Request For Underwriting

New policy processing.

RERUN

Request For Renewal

Existing policy renewal processing.

RAIN

Request For Additional

Policy endorsement processing (In case of

Insurance

physical change in the insured property)

Request For a Price

Price quote processing Evaluating and pricing

RAP

of a risk, if a new commercial policy is issued.

The process of writing a new commercial policy or renewing an existing one is depicted in the
flowchart below:

Underwriting Team 1
1 UW
1 TA

Originating
Agent

Distribution
4 Clerks

Underwriting Team 2
1 UW
1 TA

WAPTPR=10.25

Rating
4 Raters

WAPTPR=17.6

Request for Underwriting (RUN)

Underwriting Team 3
1 UW
1 TA

WAPTPR=9.47

WAPTPR: Weighted Average Processing Time per Request


UW: Underwriter TA: Technical Assistant
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Policy
Writing
4 Writers
WAPTPR=13.7

Manzana Insurance
Manzana-Fruitvale on an average received 39 policy requests per day. Please note that the
number of requests received by each underwriting team per day is calculated in Appendix I. Also,
the number of RAPs is 1798 for the 6 months of 1991 (Ex 7). It gives the requests per day as 15
(=1798/120). Out of these 15 RAP requests only 15% are converted. Hence for policy writing 2.3
(=15*15%) requests are received per day. 24 requests (39-15) are directly send for policy writing.
The policy writing department therefore actually receives (2.3 + 24) = 26.3 requests per day.

Capacity Utilization analysis of Fruitvale


Capacity utilization of each of the 4 processes is summarized below table.

Review &

Policy
Underwriting

Rating

Distribution

Writing

Weighted Avg Processing


41.0

28.4

70.4

54.8

1.5

2.1

0.9

1.1

4.0

3.0

8.0

5.0

Total capacity (per hr)

5.9

6.3

6.8

5.5

Total capacity (per day)

43.9

47.5

51.1

41.1

Total requests per day

39.0

39.0

39.0

26.3

Capacity utilisation

89%

82%

76%

64%

Time (min) (Exb 4)


Capacity = 1/ Processing
time (per hr)
Resources (workers
/teams)

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Manzana Insurance
Capacity utilization for Distribution division is concerning as it is 89% at present without even
factoring in other responsibilities that they have(like analyzing and disseminating industry data
every month) apart from their assigned job. Thus we can infer that Distribution division is overutilised.
Fruitvale branchs UT division is categorized into three territories. In their respective territories, agent
has been assigned one specific underwriting team which process agents requests. The
underwriting team assignment was done without considering the work load of the team
concerned. On calculating, we realize that territory 1s UT has a capacity utilization of 96.9%, while
underwriting teams 2 and 3 have utilization of 78.5% and 70.4% respectively. Here we can see that
underwriting team 2 and 3 are underutilized and underwriting team 1 is utilized close to its full
capacity. The calculations for utilization rates for each territory are summarized in Appendix I.

Turn-Around Time Analysis


TAT is the period between the arrival of a new request and its complete processing. Turnaround
Time calculated by Manzana-Fruitvale for week ending 6 September 1991 is 8.2 days. TAT is
calculated by adding the time taken by each process. In our view, this calculated TAT is way more
conservative than required given the rising competition. Most importantly, for forecasting the
completion date, Standard Completion Time (SCT) is used for calculation, which was based on
company-wise study completed in 1986.
There calculation also seems to be erroneous. Manzana-Fruitvale should use mean processing time
rather than SCT for TAT calculations. If the calculation is based on mean processing time, then the
TAT will be around 4.7 days (please refer to Appendix II for calculations).
However, important thing is that even though the actually calculated TAT as per our
recommendation is 4.7 days, it is still more than the quoted TAT of Golden Gate, which is 1 day
(excluding transit time). This is still less than the theoretical cycle time of around 2 days, as per Littles
law. Thus, the validity of Golden gates claim is yet to be proven.

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Manzana Insurance
MANZANA FRUITVALE: Our Recommendations
1) Review the decision of categorizing Underwriting teams on the basis of geographical territory
Looking at the utilization of underwriting teams, we propose pooling of all three underwriting teams
together so that any of the teams can handle requests as per arrival irrespective of the assigned
agents/ territory. This option would bring the average capacity utilization to 82%. This is within
optimal range of 75-85% in operations.
All 3 underwriting teams pooled together:

# of policies (Exhibit 7)
Mean time (Exhibit 4)
Total Time (min)
Weighted Average time
(min)
Number of requests per day
Working time in a day
Capacity utilization

RUNs
350
43.6
15260

RAPs
1798
38
68324

RAINs
451
22.6
10192.6

RERUNs
2081
18.7
38914.7

Total
4680
132691.3
28.35
39.00
368.59
82%

2) Uniform Implementation of FIFO for all requests


Currently, RERUNs are held until a day before their due date. This is leading to backlog. Also, the
rate of increase of late RERUNS is higher than RUNs which is resulting in rising renewal loss.
Additionally, commission paid to agent is 25% for RUNs compared to 7% for RERUNs. Thus, our
recommendation is to follow FIFO (first in first out) approach to ensure that equal priority is given to
all types of requests. (Refer Appendix III)

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Manzana Insurance
3) TAT calculation Methodology should be amended
Cross domain functional training should be conducted so that underutilized employees can be
used when required by any department. At present company is using SCT for calculating TAT which
is based on company wise study done in 1986. Using SCT, TAT comes out to be 8.2 days. If we use
mean processing time for calculations, TAT comes out to be 4.7 days. Also, Fruitvale needs to revisit
workload of teams at times in order to maintain efficiency and increase productivity

4) Achieving Line balancing along the process flow


Rating Department employs 8 raters at present. As seen in the previous calculations, Policy division
has the least capacity utilization. So we can transfer 1 employ from Policy to Rating division which
will more or less balance the overall capacity utilization. Employ transferability shouldnt create any
issues as it is already mentioned in the case that rating divisions work is almost mechanical in
nature after the advent of newer technology. Calculations for the new distribution are shown in
the table below.

Previous distribution
Resources
Total capacity (per
day)
New distribution
Resources
Total capacity (per
day)

Review &
Distribution

Underwriting

Rating

Policy
Writing

4.0

3.0

8.0

5.0

43.9

47.5

51.1

41.1

4.0

3.0

7.0

6.0

43.9

47.5

44.7

49.3

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Manzana Insurance

5) Incorporating Technological innovations for better SCTs


Improvements can be made in the technologies wherever possible, especially in rating and policy
writing stages. Manzana should implement newer technological advancements in the automation
in the Rating and Policy Writing. This will help them free up staff which can be used in other divisions
6) Better incentive plan for agents and employees for Reruns
Currently, agents get 7% for RERUNs commission as against 25% for RUNs while each salary/plus
employee gets incentive payment for every new policy written above their established quota.
Thus, this skewed incentive system made it more lucrative for everyone to prioritize RUNS over
RERUNs. This needs re-evaluation.

7) Changing the Organizational structure


Currently, Distributors report to the Rating Division head. Since distribution is more of a clerical job,
as is policy writing, recording and copying, we think reorganizing the reporting structure may
streamline the organizational hierarchy and reduce possible conflicts. Manzana should abolish
Policy writing division and form an Administrative division instead, which will head all distributors,
policy writers, record clerks and copying clerks. They can be used as pooled resources as the skill
required for each of their work is very generalist in nature.

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Manzana Insurance
Appendix 1
Territory wise capacity utilization:
RUNs
RAPs
RAINs
Territory I/ Underwriting Team I
162
761
196
43.6
38
22.6
7063.2
28918
4429.6

Number of policies (Exhibit 7)


Mean processing time (Exhibit 4)
Total processing Time (minutes)
Weighted Average processing
time (min)
Number of requests per day ( 20 x 6 = 120 days in 6
months)
Working time in a day
Capacity utilization
Territory 2/ Underwriting Team 2
Number of policies (Exhibit 7)
100
513
125
Mean processing time (Exhibit 4)
43.6
38
22.6
Total processing Time (min)
4360
19494
2825
Weighted Average processing
time (min)
Number of requests per day
Working time in a day
Capacity utilization
Territory 3/ Underwriting Team 3
Number of policies (Exhibit 7)
88
524
130
Mean processing time (Exhibit 4)
43.6
38
22.6
Total processing Time (min)
3836.8
19912
2938
Weighted Average processing
time (min)
Number of requests per day
Working time in a day
Capacity utilization
* 6 month period of 1991- Exhibit 7

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RERUNs
636
18.7
11893.2

Total
1755
52304
29.80
14.63
435.87
96.9%

840
18.7
15708

1578
42387
26.86
13.15
353.23
78.5%

605
18.7
11313.5

1347
38000.3
28.21
11.23
316.67
70.4%

Manzana Insurance
Appendix 2
Turnaround Time (TAT) based on Mean processing time (MPT).
Process Steps
No. of requests
(a)
1. Distribution

MPT (b)
Total
(4 clerks)
processing
Time (a * b)
No. of requests
2. Underwriting (a)
MPT (b)
(3 teams)
Total
processing
Time (a * b)
No. of requests
(a)
3. Rating
MPT (b)
Total
(8 raters)
processing
Time (a * b)
4. Policy
Writing
No. of requests
(5 writers)
(a)
MPT (b)
Total
processing
Time (a * b)

RUNs

RAPs

RAINs

RERUNs

Total Throughput days

11

0.32

68.5

50

43.5

28

(68.5+150+43.5+308)

68.5

150

43.5

308

(7.5*4*60)

4
43.6

10
38

7
22.6

47
18.7

1.18
(43.6+38+158.2+878.9)

174.4

380

158.2

878.9

(7.5*3*60)

12

54

1.60

75.5

64.7

65.5

75.5

(377.5+776.4+524+4077)

377.5

776.4

524

4077

(7.5*8*60)

5
71

NA
NA

9
54

56
50.1

1.62
(355+486+2805.6)

355
TAT

NA

486

2805.6

(7.5*5*60)
4.72

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Manzana Insurance
Appendix 3
1989

1990

1991 (6 months)

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Total RUNs

263

262

270

273

266

278

290

288

298

326

Late RERUNs

205

191

220

201

225

248

310

387

425

468

193

205

232

219

400

414

436

467

429

497

4.7

5.7

5.1

5.6

5.9

5.1

5.3

5.7

5.8

6.2

11.94% 10.22% 25.00% 24.84%

9.82%

10.12%

1.10%

-2.63%

4.32%

4.14% -0.69%

3.36%

8.59%

13.17% -5.60%

82.65%

3.50%

5.31%

-8.14%

15.85%

Renewal number
loss
TAT (days)
Increase in late
RERUNs
Increase in
RUNs
Increase in

-6.83%
-0.38%

6.22%

15.18% -8.64%
2.96%

Renewal Loss

Page 13 of 10

7.11%