Essay About Causes Of These Problems And Turnaround Time

Manzana Insurance
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How is the Fruitvale branch doing?
On viewing the financial performance of Manzana Ltd., we see that the branch
profitability is decreasing. There is a huge backlog of policies, which is resulting
in delays for current orders too. The number of new policies and endorsements
appeared to be stagnating, whereas the rest of the industry reported moderate
growth rates.
According to the figures of the present quarter, Fruitvale had shown a decline in
insuring new policies whereas Golden Gate had issued 100 more policies than
them in the same quarter. Moreover, the turnaround time, the time from policy
request to policy issue, for Fruitvale was 5 days, which was, much more than the
turnaround time of Golden Gate (2 days). The branch was also losing on
renewals, which amounted to nearly 33%, again more than double of Golden
Gate. The renewal losses represent a significant loss of business and an overall
reduction in the number of policies in force. While new policies have not
increased substantially, renewal policies are being lost, thus, effective growth
isnt happening.
What are the causes of these problems?
One of the causes is the wrong method used in calculating the turnaround time.
Their calculations show a much higher time than is actually the case, hence,
agents dont want to work for them and readily switch to the competition.
Another cause is the employees lack of willingness to work more at RERUNs
and RAINs. When the conversion rate of RAP to RUN is only 15%, it seems that
a lot of time is being wasted. The revenue figures for RAPs hasnt been given
explicitly, but still, a proper cost-benefit analysis needs to be done to establish
priorities.
The employees arent working enough on renewals, hence, they are losing their
existing customers. This can be partly traced to the practice of working on RUNs
and RANs first. Another part of the problem is that in their quest for up-to-date
information, the relevant data are released just one day before the date of renewal.
When the information is released, it is not acted quickly upon as the employees
focus more on RUNs and RAPs. Elementary marketing theory states that it costs
at least 5 times to attract a new customer than to please an existing customer.
Hence, their practice isnt cost-effective, which is being reflected in the falling
premiums.
Another problem is that agents contracts arent being renewed at the same pace
as that of the competition. Hence, these agents were recommending other
insurance providers.
We can look at the utilization percentage of the groups of employees.
For example, lets consider distribution.
Weighted average time = 41 min.
Arrival rate = 39 policies/day (given)
Total time available = 7.5 * 60 * 4 = 1800 min/ day
Capacity = 1800 / 41 = 43.9 policies.
Hence, utilization = 39 / 43.9 = 89%
Similarly, if we calculate the % utilization for all groups, we get the following:
Distribution
Underwriters
Rating
Policy Writing
Hence, we see that the rating and policy writing departments have a lot of idle time.
This is a symptom, the cause lies in incorrect calculation of turnaround time and doing the work in series rather than in parallel.
Can you identify the problems in the way Manzana is calculating turnaround time in exhibit 3?
In calculating the turnaround time, Manzana takes into account the 95th percentile
of the completion time. This is a very conservative estimate, the calculation
should be done using the mean. This results in a difference by a factor of 2-3,
which has a significant effect on the turnaround time.
Another issue is that they assume a series operation while calculating the
turnaround time. Ideally, work should be done simultaneously by the different
groups of people. When these 2 factors are taken into consideration, the actual
turnaround time will be reduced substantially.
Operating Steps
RAINs
RERUNs
Throughput days
Distribution
Pending
Av. per clerk
Mean time
Total time
17.125
10.875
0.3167
Underwriting
From above
Pending
0.092
23.65
Total
3.092
34.65
Av. Per team
11.55
Mean time
Total time
39.14
30.96
0.727
Time elapsed
58.125
76.64
41.835
Rating
From above
3.092
34.65
Pending
0.815
Total
38.51
Av. Per clerk
0.4875
Mean time
Total time
28.69
31.54
36.68
363.155
Time elapsed
86.815
108.18
78.515
656.155
Policy writing
From above
38.51
Pending