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OM Manzana Case Study - Team 2 (Rishi, Geoff, Vimalan, Rose, and Jonathan)

Manzana Insurance Fruitvale Branch case study

Executive Summary

Manzana’s Fruitvale branch is suffering from declining profitability. The main issues

resulting in this phenomenon are its falling renewal rate and rising turnaround time.

There are systemic issues with the process for handling requests that have led to this

deterioration, including the incorrect prioritization of requests and the uneven

distribution of workload amongst its three underwriting teams. There are also

problems of understaffing in the Distribution and Underwriting teams and possible

idle capacity in the Rating and Policy Writing teams. To compound matters, the

branch is using an incorrect methodology for computing turnaround time. Addressing

these underlying issues is key to Manzana’s ability to compete with Golden Gate,

whose quicker guaranteed turnaround time will generate loyalty among independent

agents and result in further loss of business for Manzana. To prevent this, the

following steps are recommended:-

(i)the FIFO system on all requests received should be strictly implemented;

(ii)the reward system for employees should be reviewed and aligned to support

the implementation of (i);

(iii) RERUNs should be sent to Distribution Clerks at least three days prior to the

expiry of the old policy;

(iv) The workload among the three underwriting teams should be better balanced;

(v)The SCT for the rating and policy writing teams need to be reviewed as they

are possibly based on outdated figures. This can lead to redeployment of some staff in

these departments to the understaffed departments of Distribution and Underwriting;

and

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OM Manzana Case Study - Team 2 (Rishi, Geoff, Vimalan, Rose, and Jonathan)

(vi) the methodology for computing TAT needs to be reviewed as current

methodology employed is incorrect and provides an inflated TAT figure. Accurate

SCT figures also need to be used in the computation of TAT.

Major issues at the Fruitvale Branch

The most alarming issue facing the Fruitvale branch is the sharp increase in renewal

loss rate, from 33% to 47% in the last year. As renewals represent roughly three

quarters of the company’s revenue, this is a crucial area to improve. The primary

cause of this increase is the fact that renewals are often not processed internally

before they expire, causing agents to recommend other insurers to their customers.

This links to the second major issue that needs addressing. The turnaround time (TAT)

for insurance requests is far longer than Manzana’s main competitor Golden Gate, and

is still increasing. Improving this is key to attracting new business and retaining

existing business as agents will go elsewhere if Manzana’s TAT is not reduced and

Golden Gate is able to deliver on its guaranteed TAT of 1 working day. These two

issues have contributed significantly in overall branch profitability declining.

Causes and discussion of possible solutions

Late processing of RERUNs due to prioritization

Renewals, or RERUNs, are not issued to the distribution clerks (DCs) until the day

before they are due. This would be fine if the DC’s were idle or if RERUNs were a

top priority from there, but employees systematically deprioritise RERUNs in favour

of securing new business through RUNs and RAPs, as their salary bonuses are linked

to these. As a result, the percentage of late RERUNs has more than doubled this year.

A simple solution would be to enforce the company’s official FIFO policy and not

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OM Manzana Case Study - Team 2 (Rishi, Geoff, Vimalan, Rose, and Jonathan)

have any prioritisation rules, and to support this the bonus salary structure should be

reviewed and revised so that a more aligned target, such as turnaround time or profit

is rewarded. In addition, the one day notice for DCs should be increased to three days

to ensure sufficient time for a renewed contract offer to reach the agents on or before

the expiration date of the old policy . Although this may not be based on the most up

to date information, it will not be far off and is vastly preferable to losing the business

Insufficient Capacity

Once the question of prioritisation is removed, it is possible to analyze whether the

Fruitvale branch has enough employees to cover the workload, or as John Lombard

insists, they need more staff. Of the three examples given, the Fruitvale branch has

the highest agent to underwriter ratio of approximately 25, compared to 20 for the

largest and smallest Manzana branches. However, Tom Jacobs’ “rough calculations”

indicate that the team is still working within its capacity. The utilization rates based

on Tom Jacob’s calculations and exact utilization rates (based on 39 requests per

day_) are set out below.

Distribution Underwriting Rating Policy Writing


Tom Jacobs’s 89% 89% 78% 73%
calculation
Exact 89% 82% 76% 64%
calculation*

*Detailed calculations are set out at Appendix A.

Tom Jacobs states that the Fruitvale branch is overstaffed. However, the current

utilization rates suggest that there is insufficient reserve capacity in the system to

handle variability in demand as the utilization rates are relatively close to 100%. A

guideline of 80% utilization rate is suggested as a fair compromise between

productivity and having the flexibility to respond to potential variability in demand. In

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OM Manzana Case Study - Team 2 (Rishi, Geoff, Vimalan, Rose, and Jonathan)

the premises, the Fruitvale branch is understaffed in both the Distribution and

Underwriting departments. The Distribution figure is particularly concerning as the

calculations do not even take into account the other responsibilities performed by that

department such as analysing and disseminating industry data every month, verifying

insurance competitor’s quotes and overseeing the ratings operations. This could cause

bottlenecks in these areas so will be examined further below.

Unbalanced workload amongst the Underwriting teams

Another factor to consider is that the above calculation is for average utilization,

using the average number of requests per day. This may be hiding the fact, highlighted

by Tom Jacobs, that staff are overworked at times and idle at others. This is

particularly likely to happen in the Underwriting team, who are only allocated jobs

from specific agents. This can result in an uneven volume of work for each territorial

team. If the same utilization analysis is used for each territory, it shows that this is in

fact the case.

Territory 1 Territory 2 Territory 3


Number of requests (H1 ’91) 1867 1657 1430
Requests per day (120 days total) 11.9
15.6 13.8
Time required (using 28.4min each) 443.04 391.92 337.96
Utilization (using 450mins available) 98.4% 87% 75%

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

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OM Manzana Case Study - Team 2 (Rishi, Geoff, Vimalan, Rose, and Jonathan)

so for RAINs and RERUNs, and that this is the most time-consuming step at 3.4 days.

To improve this situation Manzana needs to balance the territorial workloads. The

company could do away with the territory system altogether, and simply allocate

incoming requests to the first team available on a FIFO basis, smoothing the

utilization across the teams with each of them at an average of 87%. However, this is

still higher than the optimum value of 80%, suggesting that John Lombard’s request

for more underwriters is valid.

The drawback of this model is that it would reduce the effect of personal relationships

held between agents and underwriters, which were deemed a “critical factor in

building and sustaining market share and profitability” for Manzana. If this is still the

case, and relationships are more important than simply reducing turnaround time, the

company should not switch to FIFO with respect to allocation of requests to its

underwriting teams. Instead it may consider redefining the territories so that territory

3 takes on some of territory 1’s agents (assuming the first half of 1991 is consistent

with future expectations). It should also consider using the Review and Distribution

(Distribution) function to identify which requests require personal relationships and

prior knowledge, and which are more mechanical and can be done by any available

underwriting team. This will add some time to an already overloaded Distribution

team, but will help balance the underwriters workload and therefore ease the primary

bottleneck. However, to seriously improve its TAT, Manzana should consider

increasing its Distribution and Underwriting resources and hiring new staff in this

area.

Automation of Rating and Policy Writing Stages

A further area that could be improved to reduce the turnaround time is the rating and

policy writing stages. These can both be largely automated thanks to the development

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OM Manzana Case Study - Team 2 (Rishi, Geoff, Vimalan, Rose, and Jonathan)

of computers in the late 80’s, making the SCT inaccurate. The Fruitvale branch

spends 2/3 of the processing time on these two stages, suggesting they have not

capitalized on technological developments. Manzana cannot compete with Golden

Gate until they do. There is a chance that staff freed-up in this area can develop the

skills needed in the bottleneck stages outlined above, therefore maintaining the

current headcount and reducing any need for expensive and time-consuming

recruitment and training without affecting staff morale with retrenchments.

Problems with the current measurement system for TAT

There are four main issues with the current system/methodology used by the branch to

compute TAT.

Firstly, based on the current system the manager calculates TAT assuming that various

activities wait for earlier activities to complete before commencing. For example,

from Exhibit 3, the Underwriting team starts work after 0.6 days within which

Distribution clerks clears its backlog. Further, it assumes that policies move from one

activity to another in batches equal to the total number of policies with the

department. The TAT as computed for the week ending 6th September 1991 as set out

in Exhibit 3 is incorrect as the assumptions that the calculations are based on are

fallacious. A more accurate calculation of the TAT for that week is set out at Appendix

B.

Secondly, the current measurement system for turnaround time is based on the SCTs

calculated in 1986, before the development of computerized rating and policy writing,

the liability crisis and subsequent takeover of Manzana by Banque du Soleil and the

switch of focus to property insurance only for the Fruitvale branch. In the premises, it

is likely that the SCTs set out in Exhibit 3 and used to compute TAT are outdated and

overstated.

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OM Manzana Case Study - Team 2 (Rishi, Geoff, Vimalan, Rose, and Jonathan)

Thirdly, the use of the 95% SCT itself is misleading, as it ignores the 5% of requests

that are most time consuming. Taking underwriting RERUNs as the worst case

example, the maximum time used for one request exceeded the 95% SCT by eleven

hours. To ignore these problem requests in the turnaround calculations leads to

inaccurate expectations for team performance. This figure is only calculated once a

week, and then used for that entire week to predict turnarounds times. The workload

can change significantly in that time, so agents may be given inaccurate due dates.

Lastly, the processing times used have the staff’s unofficial prioritization process

inherent within them. They do not therefore accurately reflect the processing times

required for the requests if the official FIFO method were employed.

Recommendations

To address the two major issues of dropping renewals and increasing turnaround

times, it is recommended that the following steps be taken immediately.

The first is to enforce the FIFO policy on all requests, ensuring that RERUNs are not

deprioritised and protecting Manzana’s largest revenue stream. This will involve

changing the salary plus bonus scheme so that not only new policies are rewarded.

The RERUNs should be sent to the DCs three days before they are due to ensure they

are processed in time.

Secondly, headcount for the Distribution and Underwriting departments needs to be

increased as the departments are understaffed as indicated by their utilization rates

which are not able to cope with variability in demand.

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OM Manzana Case Study - Team 2 (Rishi, Geoff, Vimalan, Rose, and Jonathan)

Thirdly, the territorial system for underwriters needs to be reviewed. A strategic

choice is required on whether to sacrifice the personal relationships between

underwriters and agents in favour of improved turnaround times. If Manzana are to

maintain these relationships – possibly giving them a point of difference over Golden

Gate’s model – they should balance the expected workloads and investigate which

requests have to go to territory teams and which can go to anyone available.

However, the company may still need to recruit in this area to successfully compete

with Golden Gate.

Fourthly, Manzana needs to further implement technological developments in the

computerization of the Rating and Policy Writing stages. This may free up staff to be

redeployed in Distribution and Underwriting.

Lastly, the system and the methodology for computing TAT needs to be reviewed

based on an updated SCT and employing the methodology set out above.

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OM Manzana Case Study - Team 2 (Rishi, Geoff, Vimalan, Rose, and Jonathan)

Appendix A: Capacity Utilization rates

Distributio Underwritin Rating Policy


n g writing
a) Weighted
average processing 41mins/ 28.4mins/ 70.4mins/ 54.8mins/requ
time request request request est
(Exhibit 4)
b)Total Capacity
(1/ a * 60 * 43.9 47.54 51.14 41.06
capacity available) (1/41 * 60 * (1/28.4 * 60 * (1/70.4 * 60 * (1/54.8 * 60 *
30hrs) 22.5hrs) 60hrs) 37.5hrs)

c) Total requests
per day (22 +17) 39 39 39 29 (75%)

Capacity Utilization
(c/b) 89% 82% 76% 70%

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OM Manzana Case Study - Team 2 (Rishi, Geoff, Vimalan, Rose, and Jonathan)

Appendix B: Proper calculation of TAT for week ending 6th September 1991

DC
no of requests 1.0 3.0 1.0 11.0
team
request per person 0.3 0.8 0.3 2.8 4.0 members
95% SCT 128.1 107.8 68.1 43.2
Time required 32.0 80.9 17.0 118.8 0.6 days

UW backlog
no of requests 3.0 7.0 6.0 36.0
team
request per team 1.0 2.3 2.0 12.0 3.0 members
95% SCT 107.2 87.5 49.4 62.8
Time required 107.2 204.2 98.8 753.6 2.6 days

UW new
no of requests 1.0 3.0 1.0 11.0
team
request per team 0.3 1.0 0.3 3.7 3.0 members
95% SCT 107.2 87.5 49.4 62.8
Time required 35.7 87.5 16.5 230.3 0.8 days

Rating backlog
no of requests 1.0 2.0 1.0 7.0
team
request per person 0.1 0.3 0.1 0.9 8.0 members
95% SCT 112.3 88.7 89.4 92.2
Time required 14.0 22.2 11.2 80.7 0.3 days

Rating new
no of requests 4.0 10.0 7.0 47.0
team
request per person 0.5 1.3 0.9 5.9 8.0 members
95% SCT 112.3 88.7 89.4 92.2
Time required 56.2 110.9 78.2 541.7 1.7 days

PW backlog
no of requests 0.0 0.0 1.0 2.0
team
request per person 0.0 0.0 0.2 0.4 5.0 members
95% SCT 89.3 0.0 72.1 67.0
Time required 0.0 0.0 14.4 26.8 0.1 days

PW new
no of requests 5.0 0.0 8.0 54.0
team
request per person 1.0 0.0 1.6 10.8 5.0 members
95% SCT 89.3 0.0 72.1 67.0
Time required 89.3 0.0 115.4 723.6 2.1 days

PW last
no of requests 1.0 1.0 1.0 1.0
team
request per person 0.2 0.2 0.2 0.2 5.0 members
95% SCT 89.3 0.0 72.1 67.0

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OM Manzana Case Study - Team 2 (Rishi, Geoff, Vimalan, Rose, and Jonathan)

Time required 17.9 0.0 14.4 13.4 0.1 days

4.4 days

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