Manzana Insurance

IDENTIFICATION & ANALYSIS OF PROBLEM

The case, Manzana Insurance - Fruitvale Branch, deals with performance assessment and improvement of service processes in a market that is very sensitive to response time. Branch offices of two companies in direct competition are described, and the impact of response time on performance is alluded to in the case.

The following problems have been identified at the Fruitvale branch :

 Declining profitability

 Increasing TAT leading agents to take their businesses elsewhere

 High renewal loss rates because of increasing number of late renewals

The above problems are caused by inefficiencies in the process. Further, the problem is compounded by employees not delivering output efficiently because of influence of incorrectly calculated TAT (Pygmalion effect).

In Exhibit 3, the manager has calculated the Total TAT as 8.2 days assuming that various activities wait for earlier activity to complete before starting, e.g. Underwriting starts work after 0.6 days within which DC clears backlog. Further, it assumes that policies move from one activity to another in batches equal to total number of policies with the department. An illustration of this is shown in the following Gantt chart.

DC

0.6

UT

2.6 3.4

Rtng

0.3 3.9 4.3

PW

5.3 5.7

The above chart illustrates the case when pending work is started in all departments simultaneously and completed in batches. It is observed that a much lower value of TAT is achievable just by moving policies in smaller batches. Further, bottleneck is observed at the underwriting (UT) stage.

The following table gives labor input required for various processes, viz. RUN, RAP, etc.

RUN RAP/RUN RAP RAIN RERUN

DC 68.5 50 50 43.5 28

UT 43.6 38 38 22.6 18.7

RATING 75.5 64.7 64.7 65.5 75.5

PW 71 71 0 54 50.1

Labour Input/policy (mins) 258.6 223.7 152.7 185.6 172.3

No standard system for prioritizing work is followed across departments. Reruns are given lowest priorities leading to loss of business in this segment. Though average premium is lower for renewals, profit is higher and thus fall in

Renewal business is directly affecting profitability of the branch.

New Renewal

Average Premium $ 6,724.00 6,205.00

Commission %age 25% 7%

Commission Amount $ 1,681.00 434.35

Labor Input / policy mins. 258.60 172.30

Bonus/ New policy $ 150.00 -

Labor Cost * $ 43.10 28.72

Avg. Profit *** / Policy $ 4,849.90 5,741.93

* assuming $10/hr across various functions

*** before other expenses (similar for both types)

RECOMMENDATIONS

1. Shift 2 employees from Rating department to underwriting. This will reduce the total TAT to 5.5 days as shown in the following Gantt chart. Also from this chart we can infer that the policies should be moved across departments in batch size of one, i.e. a policy should be sent to rating as soon underwriting