Manzana Insurance

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Case :Manzana Insurance (HBS 9-692-015)

Prepared as a part of the course work of

POST GRADUATE PROGRAMME 2017-19

INDIAN INSTITUTE OF MANAGEMENT VISAKHAPATNAM

ANDHRA PRADESH, INDIA.

JULY, 2017

Prepared by

GROUP 4

Nishank Maheshwari (1710034)

Sahithi Manam (1710044)

Subrat Sarkar (1710054)

Tanmoy Misra (1710058)

Vikrant Jee (1710061)

How is the Fruitvale branch doing?

Manzana Insurance started as orchard and farm insurance in California 1902.Soon after the second world war it became the second largest commercial and home property insurance company. They saw a dip in their growth because of the new entrant in this market is Golden Gate Casualty. The two companies competed to become the best in the property insurance market.

Manzana operated in California, Oregon and Washington as autonomous offices, maintaining its own profit and loss, having their own authority to write insurance, charge premiums and settle claims to the territory they belong to. 2000 agents represented Manzana as independent sales force and Manzana maintained close relations with them as they were a critical factor in making profit and acquiring market share.

Manzana had many branches and the size of these branches varied from 14 underwriting team(largest) to 2 writing team(smallest). Fruitvale was on the smaller branches of the Manzana. It consisted of three underwriting teams backed by 76 agents in its assigned geographic territory. It also consisted of 4 distribution clerks,8 raters,5 policy writers.

Fruitvale had become one of the worst performing branch of Manzana and was being outperformed by Golden Gate Casualty in its territory. The reasons for this are as follows

• The Turnaround Time has increased to 6 days from 5 days in the second quarter of 1991 as compared to last year.
• Renewal loss rate had risen to 47% as compared to 15% of Golden Gate.
• Profits had decreased, it made loss in first quarter of 1991 - $174000 and second quarter of 1991 - $121000.
• Scheduling of resources was either too tight or very idle. (Distribution Utilization rate was 89 % whereas Policy writing utilization rate was 71%)
• Back logs were increasing. (Renewals were taking lot of time due to the underwriting department delaying the process.)
• Large number of late renewals. (44 % in second quarter in 1991 as compared to 20 % in second quarter 1990)
• Departments didn’t follow the documented procedure ie FIFO for any kind of process ( RUN – Request for Underwriting, RERUN – Request for renewals, RAP – Request for Price , RAIN – request for Additional Insurance). All the requests were supposed to be handled in the FIFO manner but RUN and RAN were given priority.
• Salaries were not aligned to profits made ie Salary/Plus employees to senior most underwriter employees and for those employees who sold policy above their targeted quota. As a result new policy were given favour instead of renewals.

What are the causes of these problems?

The causes of the above stated problems are

• Manzana Insurance’s growth started faltering due to intense competition from Golden Gate Casualty Insurance because of lucrative offers like Turn Around Time of 2 Days against 6 Days by Manzana Insurance.
• Instead of working on the Company’s Policy of First-In-First-Out at each Stage of the Underwriting Process, but in practice they were processing on FIFO basis only for RUNs and RAPs and not on RAINs and RERUNs. This created a backlog for the RERUN Process.

Let us take Example of 1st and 2nd Quarter of 1991. There were no Backlog for RUNs and RAPs as they were preferred because of better Profits. RAINs created a backlog of 3 in 2nd Quarter and RERUNs created a Backlog of 425 in 1st Quarter and Backlog of 468 in 2nd Quarter. This resulted in loss of 429 Renewals in 1st Quarter and 497 Renewal Losses in 2nd Quarter of 1991.

• There was improper distribution of Work given to Underwriters whereas there were more staff than required in Rating Team and Policy Writing Team. In this way, it resulted in the Situation where some Teams were awarded Work more than their Capacity while others were in idle Position. This resulted in a big difference between Actual Working Hours required and total Working Hour available
• There was a big loss in Renewals which went down from 1063 from 1253 in one Year time difference as the Notices were sent on the last Day to Agents. That’s why Agents started referring to other Companies for Insurance.

Can you identify in the way Manzana is calculating Turnaround time in Exhibit 3?

In the case given, from exhibit it tells us that the turnaround time is 8.2 days.

The turnaround time calculation may have flaws

• Instead of using the SCT ie Standard Completion time, the mean time of the process could be used. Reason for this is that mean time would incorporate all the productive as well as the non-productive time.
• Once a process reaches a steady state the Turnaround time should not be the addition of all the four processes which are running in parallel. Thus, the overall time will reduce.

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• In the above table, we can see that even if we use mean time TAT turns out come to 4.71.
• The utilization of distribution clerk is 89 % which is comparatively higher to other processes. Assigning task such as analysing and disseminating data, research insurance rates of other companies, verifying the rates posted by the competitors and looking after ratings may add to the burden which may increase the waiting time.
• The underwriting teams are present in different geographical location so the allocated time may vary and the workload may be different.
• The SCT time calculated in the Exhibit 4 uses the data from 1986. This data doesn’t consider the entry of computers in the late 1980s. Due to entry of computers the processing time would significantly reduce.
• The turnaround time should be calculated on one request rather than on the total number of requests.

If you were Bill Pippen, what would you recommend that Fruitvale do?

Bill Pippen has observed that Underwriter team is not evenly utilized after they are divided according to the geographic location.

Territory 1: