Problem Analysis

The Fruitvale branch of Manzana handled property underwriting i.e., issuing new
insurance policies, quotes, endorsements and renewals. It had declining branch
profitability. It was suffering from poor turnaround time of 8.2 days and poor
percentage late renewals and loss of renewals. In comparison, Golden Gate
consumed a turnaround time of 2 days only. The problem faced by the Fruitvale
Branch of Manzana Insurance is declining market share and profits, which may be
attributed to the following parameters:
1) High turnaround time (TAT). Despite being overstaffed in rating and policy
writing. The turnaround time of Manzana as compared to Golden Gate is
an alarming extra 5 days.
2) The backlog of policies had increased since 1989, and the number of new
policies and endorsements appeared to be stagnating, whereas Golden Gate
reported moderate growth rates.
3) High number of late renewals, causing a rise in the renewal loss rate, which
was unattractive for agents. There are issues with the process for handling
requests that led to this problem, including the incorrect prioritization of
requests (wrong FIFO used) and the uneven distribution of workload amongst
the three underwriting teams.
4) Ineffective incentive systems, increase in shift to newer policies, bottlenecks
in operation, possible idle capacity in the Rating and Policy Writing teams,
etc.
Policy Processing
Manzana processes 4 types of policies:
RUNS (Request for Underwriting)
The Process of writing a new commercial policy began when a distribution clerk
received a written request for Underwriting from an agent. The Clerk after
performing all the required functions passes it to the Underwriting team to evaluate,
select, classify and price it. From there it is passed on to the policy writing
department where the actual typing, assembly and distribution takes place.
RERUNS (Policy renewal)
It dealt with annual revaluation and if necessary re-pricing of risks insured by the
commercial policy. The processing was similar to that for RUNS with the difference
that renewals are generated by the system. The renewal was done on
the anniversary of the policy date.
RAIN (Policy endorsement)
If there was any physical change in the property being insured, a policy
endorsement was needed to amend the terms of the existing policy. The processing
of a policy endorsement was called RAIN.

RAP (Price Quotes)

The processing was similar to that for RUN but the difference was that after the
rating for the policy was done it was sent back to the distribution clerk, who was
responsible for sending a price quote to the originating agent. If it was accepted the
quote was sent directly to the policy writing department.
The policies are dealt with on a First In First Out (FIFO) basis while the
underwriting team prioritizes them in the order of RUNs, RAPs, RAINs and then
RERUNs.

Total number of requests received by the Fruitvale branch: 39 per day

From Exhibit 7, one can identify the number of requests received by
each team/territory
(Number of RUNS + Number of RAPS + Number of RAINs + Number of RERUNs)/ (20
days *6)
Team 1: (162+761+196+636)/120 = 14.625 requests per day
Similarly for Team 2 and Team 3 it is 13.15 requests per day and 11.225 requests
per day
From Exhibit 7, number of RAPs is 1798 for 6 months in 1991 or (1798/120) = 15
requests per day.

Out of these 15 RAPs request only 15% are converted for policy writing, 15*.15 =
2.3requests per day.
24 requests (39-15) are directly send for policy writing.
The policy writing department therefore actually receives (2.3 + 24) = 26.3
requests per day.
Under the present structure, there are three Underwriting teams, with each team for
a particular territory. We have calculated the capacity utilization for each territory.
Capacity utilization of each department in the process
Flow Distribution Underwriting Rating Policy writing

Weighted
average
processing
time per
request, min,
t
Total
capacity=
i/t*60*capacit
y
Total request
per day
Capacity
utilization=
total request
per day/ total
capacity

Distribution

Underwriting

Rating

41 req/min

28.4 req/min

70.4 req/min

Policymakin
g
54.8 req/min

1/41
*60*4*7.5
=43.9

1/28.4
*60*3*7.5
=47.54

1/70.4*60*8*7
.5
=51.14

1/54.8*60*5*7
.5
=41.06

39

39

39

39

89%

82%

76%

64%

Capacity utilization of underwriting teams located in three different

territories
Underwriting
Weighted average
processing time
per request
Total capacity=
i/t*60*capacity
Total request per
day
Capacity
utilization= total
request per day/

Territory 1
28.4

Territory 2
28.4

Territory 3
28.4

1/28.4*60*7.5=15.
84 requests
14.625

1/28.4*60*7.5=15.
84 requests
13.15

1/28.4*60*7.5=15.
84 requests
11.225

92.3

83

70.8

total capacity
By Littles Law,
the average lead time using the inventory and the average flow rate comes out to
be
2.1 days
(82 policies/ 39 policies per day).

Decreasing Revenues, Increasing Expenses

Manzana has steadily declining revenues from renewals, down 6.24% since
1989 and ordinary insured loss expenses have increased 23.5% since 1989.
These two factors have combined to make the once profitable Fruitvale
branch unprofitable.

High Agent/Team Ratio

The average Manzana branch serves 20 to 25 independent agents per
underwriting team. The smallest branch serves 20 agents per team while
the largest serves 21.43 agents per team. Fruitvale is currently serving
25.33 agents per team which potentially puts them at risk of becoming
overloaded on requests, which leads to increasing TAT.