Essay About Manzana Insurance And Promise Of One-Day Turnaround Time

Manzana Insurance
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Harvard Business School 9-692-015
Rev. January 30, 1997
Manzana Insurance – Fruitvale Branch (Abridged)
It was a Monday morning in early September 1991. Bill Pippin had been at Manzana for only
a week, but already he was thinking that perhaps he should have taken a different job. He gazed at a
note on his desk from John Lombard, his boss at the Fruitvale branch: “Im giving a speech at a
conference on property insurance, so Ill be out of the office until next week. Please give this some
thought while Im gone.” The note was attached to a memo from Tom Jacobs, Manzanas senior vice
president for underwriting operations:
To: John Lombard
From: Tom Jacobs
Subject: Second Quarter Performance
The performance figures on Property Insurance for the second quarter have
just been completed, and Fruitvale is at the bottom of the list again. More important,
Golden Gate is killing us in your territory, and they have just announced a promise
of one-day turnaround time to all agents. If something isnt done immediately to
improve your operating performance, a lot of our agents are going to defect to
Golden Gate, and some of us are going to need new jobs. Here are some of the
numbers:
Manzana-Fruitvale Golden Gate
This Quarter This Quarter This Quarter
This Year Last Year (estimated)
New policies 326 278 375
Endorsements 206 235 300
Renewals 1,063 1,253 1,400
Turnaround time (average) 6 days 5 days 2 days
Renewals late 44% 20% NA
Renewal loss rate 47% 33% 15%
Something has got to be done about this. Were getting lots of complaints from agents about
your turnaround time, your percentage late figure is unacceptable, and we cant afford to lose almost
half of our renewal business every year.
John, ever since we eliminated an underwriting team in 1990, youve been
saying that you need more underwriters. But when we look at the volume of
Christopher Loch and David Paul Grant prepared the original version of this case (S-DS-87, Revised 5/90) under the
direction of Professor Michael J. Harrison, Stanford University. It is based on an earlier case by Karlyn Carnahan.
Professor Steven C. Wheelwright, Harvard University, prepared the abridged case as the basis for class discussion rather
than to illustrate either effective or ineffective handling of an administrative situation.
Copyright © 1991 by the President and Fellows of Harvard College and by the Board of Trustees of the Leland
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Manzana Insurance – Fruitvale Branch (Abridged)
business you are handling, it looks as though theres more than enough people in
your operations.
Fruitvale handles only property underwriting, and your branch typically
receives about 22 requests for new insurance, endorsements, or price quotes a day,
and handles another 17 or so renewalsÑlets call it 40 total requests per day. Based
on average processing times for each major task, Fruitvale should be able to handle
that easily. My rough calculations are as follows:
Operating Activities
Review and
Distribution Underwriting Rating
Policy
Writing
Daily Activity 40 requests 40 requests 40 requests 40 requests
Average Time
Required
40 min. each
40 requests
= 26.7 hours
30 min. each
40 requests
= 20 hours
70 min. each
40 requests
= 46.7 hours
55 min. each
30 requests
(75% of daily
requests)
=27.5 hours
Capacity Available 4 clerks
7.5 hrs/day
= 30 hours
3 teams
7.5 hrs/day
= 22.5 hours
8 raters
7.5 hrs/day
= 60 hours
5 writers
7.5 hrs/day
= 37.5 hours
Frankly, I dont see where the problem is. If anything, it looks as if you
might be overstaffed in rating and policy writing. In addition, I hear that a staff
memberÕs workload is quite uneven over time: one day an underwriter might be
stretched to the limit; a week later he may be idle. Whatever the problem is, we need
a solution fast.
Ill expect a memo with concrete suggestions on my desk in two weeks.
When Bill Pippin was in business school, he had become interested in applying production
management techniques to service industries. He had interviewed with a number of financial service
companies, including Manzana Insurance and Golden Gate Casualty, Californias two largest
property-liability insurers. Ultimately, Pippin decided to join Manzana as assistant manager of the
Fruitvale branch. (See Exhibit 1 for an organization chart.) After reading Tom Jacobss memo, he
paused for a few minutes reflection and then decided to ask some questions about the scheduling of
work flow at the Fruitvale branch.
Company Background
Manzana Insurance, founded in Sebastopol, California, in 1902, originally specialized in
orchard and farm insurance. Following the San Francisco earthquake and fire of 1906, however, the
company saw an opportunity to expand its business throughout northern California by buying
several insurers that had been driven to near bankruptcy by the catastrophe. In 1944, anticipating the
end of World War II and foreseeing a boom in home ownership in southern California, the company
purchased the Santa Ana Underwriting, Casualty and Escrow Company. By 1953, Manzana had
become the second-largest home and commercial property insurer in California.
In the 1970s, however, Manzanas growth began to falter in the face of high interest rates and
intense competition from Golden Gate Casualty, a new entrant in the home insurance market whose
corporate parent was one of the largest retailers in the world. Backed by its parents resources,
Golden Gate launched an intensive marketing campaign and precipitated a price war in an attempt to
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Manzana Insurance – Fruitvale Branch (Abridged)
692-015
gain market share from Manzana. Manzana fought back, and by 1988, the two companies were in a
virtual tie for first place in the property insurance market.
In 1989, Manzana was acquired by Banque du Soleil, a multinational financial services
company, and new management was installed. Attention was directed towards tightening the
companys underwriting standards, regaining market share, and reducing operating expenses. Less
profitable lines of insurance were discontinued entirely, and operations at branch offices were
reorganized on a geographic basis in order to improve the companys responsiveness to agents and
make the company more market-driven.
Organizational Structure
Manzana operated through a network of relatively autonomous branch offices