Manzana Insurance
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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.
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.
RAP/RUN
RERUN
RATING
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.
Renewal
Average Premium
6,724.00
6,205.00
Commission %age
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
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