Manzana
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Introduction
Company Background: Manzana Insurance was founded in 1902 in California and specialized in orchard and farm insurance then. But, a series of acquisitions followed the San Francisco earthquake and by 1953, Manzana was the second largest property insurer in California.
In the 1970s, it faced intense competition from Golden Gate Casualty, a new entrant in the home insurance business. Golden Gate could spend on intensive marketing and spark off price war due to the backing of its corporate parent, one of the largest retailers in the world. The high interest rates during this period also adversely affected Manzanas property insurance business. Hence, Manzana started venturing into other business areas and began insuring liability too. From almost no liability policies in the mid 60s, it went to almost a 50-50 split between liability and property insurance in the 1980s and now, 65% is property while 20% is liability insurance. But unfortunately due to the insurance crisis of the 1980s, settlement claims on liabilities rose and the company posted its first annual loss in 1985. It was subsequently taken over by Banque du Soleil in1989. Manzana, under the new management adopted a back to basics strategy and concentrated on regaining its market share in the property insurance business. Less profitable lines of business were discontinued and the operations at the branch offices were geographically re organized in order to improve the market responsiveness.
Organization: The Company operates through a network of semi-autonomous branch offices. It treats each branch as a profit center and a territory is assigned to each branch. Manzana does not deal directly with the customer, but has a network of more than 2000 independent agents who bring business to the company. Hence, loyalty of the agents and their motivation to push through a Manzana policy is critical to the profitability of the company.
Each branch has underwriting teams to support the agent (typically, 20-25 agents under a team). Agents earn a 25% commission on a new policy and a 7% commission on a renewal. In order to retain experienced employees, Manzana recently kicked off the salary/plus scheme.
Process Flow:
The time required for different request types are different for each of the activities.
Request Type
Distribution
Underwriting
Rating
Policy Writing
RERUN
All requests start with the distribution clerk distributing the request for insurance policy (RUN, RAIN or RAP) received from an agent or computer (RERUN) to the respective underwriting team. Distribution also analyses and disseminated published data, researches competitors rates and oversees rating. The underwriting team evaluates, selects, classifies and prices the request and then it passes on to the rating department where the premiums are calculated. The policy writing departments does the actual typing, assembly and distribution of completed policies. In case of RAP, the quote was transferred to the originating agent from the rating department and once accepted, went straight to the policy writers. Only around 15% of all quotes translated into policies. The revenue generated by each is given below
Policy Type
Annualized Premium Revenues ($)
RERUN
The Fruitvale branch followed the FIFO method, but in practice, there were 2 priority classes (within which again, FIFO was followed). The RUNs and the RAPs, being more revenue generating were tackled first and then the RAIN and RERUN. In case of policy writers, they seemed to handle the easier tasks first and then the more complex ones.
The Fruitvale branch of the company has not been doing well over the last few years as revealed by the financials of the company. Its performance has dropped over almost every metric. Profitability has declined and the TAT has gone up from about 3 days to 6 days now. On the other hand, Golden Gate was offering a seemingly impossible 1 day turnaround period. This had the effect of the independent agents pushing through the policies of Golden Gate ahead of Manzanas. The number of new policies has stagnated for the Fruitvale branch over the years in spite of moderate industry growth. The renewal losses were also very high with about 47% renewals being lost every year.
The state of the business
All figures in $
Quarter
Gross Premiums
New Policies
Endorsements
Renewals
Total
On analyzing the data of the company from exhibit 5 it was found that over the quarters from 1989, the total revenues of the company has been decreasing consistently from the first quarter of 1990 onwards. A possible reason for this could be the decrease in the number of policies in operation over this period as shown in the table below.
(Data derived from exhibit 7)
1991(first 6 months)
Policies in force
To investigate further into it, the data for the different types of requests were analyzed and tabulated.
(Data derived from exhibit 6)
All figures in number of policies
Renewals – Number lost
Total RUN requests processed
Renewals lost – Total new Run requests