Manzana Insurance Case

IIM VISHAKHAPATNAM

OPERATIONS MANAGEMENT

CASE SUBMISSION

on

MANZANA INSURANCE

Submitted to

Prof. LS Murty

Indian Institute of Management Vishakhapatnam

Submitted by

Group 06

Alok Kumar 1510006

Devi Susrith 1510015

Kannidi Anudeep  Susanth 1510024

Pradeep Chandra Rentapalli 1510033

Ruthra Prasad 1510042

Venkata Narendra 1510053    

INTRODUCTION

Manzana Insurance Company, founded in 1902, California, originally specialized in orchard and farm insurance. In mid 1950s it was the second largest property insurer in California. In the 1970s, Manzana’s growth started to decline as a new competitor, Golden Gate Casualty had arrived in market. Manzana fought back to recover the market by reducing the price and gained almost same market as Golden Gate was covering.

In 1989, Manzana was acquired by Banque de Soleil, under the new management less profitable products were removed from market & Operations at branch locations were divided on geographic basis to improve company’s response to agents.

MANZANA OPERATION PROCESS

Manzana operated through a network of autonomous branch office. It doesn’t deal with public directly; instead there were approx. 2000 agents who represent Manzana & Other Insurance companies. Fruitvale was one of Manzana’s smaller branches, with 3 teams supporting 76 agents in three areas. In mid 1960s, they started dealing with liability insurances as well. But crisis of liability insurance caused them first annual loss. Fruitvale branch was only focused on property insurances. Operation Flow at Manzana is shown in Annexure 1.

 Four types of requests were processed -

1. RUN- request for underwriting a policy.
2. RERUN- request for renewal of old policies
3. RAIN- request for additional insurance if any physical change in property
4. RAP- request for price quote i.e. evaluation & pricing of a risk in case a new commercial policy will be issued.

Agents get 25% commission for new policies and 7% for renewals. The Underwriters and Branch manager are designated as “salary/plus” employees as they receive an incentive payment for each new policy written above their established quota.

Process of writing a new policy (RUN) starts with receiving request from field agents to distribution clerk (DC). DCs logged all details regarding policy into computer & transfer it to underwriting team (UT) that was assigned to particular agent. UTs evaluate, select, classify & price the policy. After it was done, they transfer the report to rating department (RT). RTs calculate the policy premium based on instruction given by team. From rating dpt. new policy was transferred to Policy Writing department (PW). PWs do the typing, assembly & distribution of completed policies.  

RERUN follows almost same process as the RUNs. As risk aged, company charged lower premiums on older policies. In case of RAIN, a policy endorsement was needed to modify the terms of existing policy. RAP process differs from others as after rating they were sent back to agent for acceptance. If policy is accepted, it goes directly to policy writer.

MANZANA FRUITVALE’S BRANCH PERFORMANCE

Under new management, i.e. after 1989, branch performance was declining. In 1st & 2nd quarters of 1991, branch was in loss. Numbers of late renewals were at peak. Also renewal of old policies was decreasing at significant rate. Renewal loss rate is increased to 47% compare to 33% of same quarter in previous year. Branch Manager requested the management to include another underwriting team as he citied this issue to be the cause. Backlogs of policies had increased by more than 100% compare to 1989. Ordinary insured losses are increasing highly since 1990. Also new policies & endorsements appears to be stagnating while its competitors such as Golden Gate, reported moderate growth in these areas. Renewal Loss represented a significant loss in business & reduction in number of running policies. Gross premiums of new policies had been increased from 1989 to 1991. (Ref. annexure 2)

Critical Area in Fruitvale Branch is increased Turnaround Time. Turnaround Time is total time required for processing of each new request in upcoming week. In current financial year turnaround time was increased to six days from three days.

PROBLEM FACED BY MANZANA’s FRUITVALE BRANCH

As Manzana performance is continuously declining, there seems to be many problems which are faced by it. Main reason was due to increase in number of backlogs. Employees were not following the standard priorities. They are considering the RUNs & RAPs as only profitable source for the company. Therefore they prioritized accordingly which resulted in backlogs of RERUNs. After 1989, when Manzana was acquired by Banque de Soleil, the new management reorganized the operations based on geographical basis. Due to this division, some areas are overloaded with work compared to their counter parts, teams are sitting idle or having less work. Key problem faced by Manzana could be summarized in following ways-

1. TURNAROUND TIME:  

            The total time required for a policy to be completed since the receiving of a request from the agent is considered as Turnaround time. This is the most important factor on which the agents choose the companies as insurance rates and commission schedules are mostly identical within the competitors. But the turnaround time of Fruitvale branch has jumped from three days to five days until last year (1990) and increased drastically for another day for the present year. Contradictory to Manzana, its competitive insurance company Golden Gate had been performing with a comparatively very less Turnaround time of two days on average. Recently Golden Gate has announced a guaranteed turnaround time of one working day. If golden gate could make it, chances of shifting of too many agents are pretty high.

                The Turnaround time (TAT) in Exhibit-3 is calculated using 95% of Standard completion time has yielded 8.2 days. While calculating the same using the Mean Time and Average time gives a better result of 4.69 days and 5.02 days respectively. (Annexure 4& 5)

1. NEGLECTING RENEWALS:

               Manzana Insurance Company has a policy called ‘employee-plus’ under which an incentive payment is made to each new policy written above their established quota. This was introduced to retain the senior staff from defecting to the competitor companies. Due to this policy, most of the employees are inclined towards the new policies and the renewals which are equally important are being neglected. Actually renewals were also profitable as new policies for company.(ref. annexure ) FIFO system was expected to follow in each stage of underwriting process, but in practice RUNs and RAPs (out of which only 15% convert into RUNs) are given priority over RAINs and RERUNs which resulted in a large number of backlogs.