Manzana Insurance

Group 2
Operations Management
Term-2
PGP 2015-17

By
Praful Kumar Parakh- 1511267
Mirank Maheshwari- 1511295
Gagandeep Singh Sumbria- 1511
Vivek Bajpai- 1511293
Kumar Vikrant- 1511256
 Introduction
Manzana Insurance was founded in Sebastopol, California in 1902. It originally specialized in
orchard and farm insurance and later expanded its business to become the 2nd largest home and
commercial property insurer in California by 1953. However, in the 1970s Mazana’s growth
started to decline with its Fruitvale Branch losing almost half of its business every year.

The reasons for the inefficient operations of the Fruitvale Branch are as follows:

1) Increasing Turn-Around Time (TAT)-

The total time required to process a new insurance request had increased 20% over last year and
was far greater for Fruitvale branch than its competitor Golden Gate. Moreover, an
announcement by Golden Gate to reduce its TAT to one day had increased the completion. There
problems are further aggravated by 47% renewal loss rate as compared to 33% last year.

2) Reduction in market share and profits-

The renewal losses resulted in a significant reduction of business and the branch reported a total
loss of $295,000 in the first half of 1991.

3) Backlog of policies-

The backlog of policies had increased since 1989. In a time when Golden Gate reported moderate
growth rates, the number of new policies and endorsements for Fruitvale appeared to be
stagnating.

4) Other reasons-

Ineffective implementation of the FIFO system, faulty incentives mechanism and improper work
load balance among teams leading to idle time for Rating and Policy Writers are some of the
other problems faced by the Fruitvale branch.
Possible causes for inefficiency in performance:

1. Loss of Renewals

The mean time for RERUNs is less in relative comparison to the other types of requests in
different operating processes, but still there is a huge backlog on the RERUNs. According to the
data, the Renewal Loss rate for the company this quarter was 47% and 44% of the Renewals were
late. This has led to a major business loss for the company with the customers moving to
competitors for better service. This has impacted the profitability of the company.

2. Prioritizing using FIFO system:

Currently the company follows a FIFO system at each stage of the underwriting process and the
requests are processed in the order of which they arrive. But in actual practice the underwriters
gave more priority to RUNs and RAPs over RAINs and RERUNs. This is because RUNs and RAPs
are the more profitable businesses and the employees know that the customers would anyway
renew their policies. Also, for RUN requests, agents receive a commission of 25% whereas they
receive just 7% in case of RERUNs. This lead to an increase in backlog of RERUNs which further
led to lost renewals contributing to loss.

3. Underutilization of Teams:

According to the Exhibit 2, the operating activities performed by the different teams were far
below their maximum capacity. The capacity utilization for the Rating and Policy Writing teams
being just 77.8% and 73.3% respectively. Also, the capacity utilization for the underwriting teams
are shown in Exhibit 5. According to the calculations the utilization of Underwriting Team 2 and
Underwriting Team 3 is merely 78.5% and 70.4% respectively. This confirms that there is an
unequal distribution of workload wherein the Underwriting Team 1 is utilized to the full but the
other teams do not have that much of work.
Process flow

An analysis of the operations done by Fruitvale branch has been done.

Turn Around Time

The TAT is defined as the time taken by the insurance company to complete processing of one
policy. The TAT is given in the case as 8.2 days. The analysis of the calculations done to find TAT
was carried out and following changes for calculating TAT were introduced:

1. Instead of using the 95% Standard Completion Time, Mean Time has been used for the
calculations.
2. Individual time taken by Underwriting Teams (UT-1, UT-2 and UT-3) has been considered.
Furthermore, as the process reaches the steady state, throughput time = Work in
progress/ throughput rate = 82/40 =2.05 (By Little’s Law). This is still higher than
proposed TAT by Golden Gate. Also, assuming all process to be sequential and taking
mean time, TAT is calculated as 4.71 days (Exhibit 3).

Capacity Utilization

The request for any kind of insurance undergoes 4 steps. The time required for processing
depends upon the kind of request. We have calculated time required at each step for different
kind of requests. We have not consider all the RAP’s for the policy writing process. Only those
RAP’s are considered which are converted into RUN’s (15%). Underwriting (UT-1 team) is found
out to be the bottleneck process from Exhibit 5 & 6. UT-1 was found out to be overburdened and
the capacity of teams UT-2,3 were underutilized. We can conclude from this analysis that the
operations management of Fruitvale branch is not appropriate, rather it needs more refinement
and proper structuring. The following recommendations have been provided to help Fruitvale
branch improve its performance.
Recommendations:
1. TAT (Turnaround time) can be improved by increasing capacity of UT-1 as they are overloaded
and demand in territory is high. Alternatively, we can redefine territory so that there is
even distribution of workload among the underwriting teams. (See Exhibit 5)

2. Number of policy writers can be decreased as they receive less workload in comparison to
other teams.

3. All the processes should be given equal priority. Only 15% of RAP’s get converted to RUN and
more focus on RAP doesn’t make sense. Also, faster and larger number of RERUN’s will
help company to develop loyal customer base and thus profitability. The loss of renewal
is increasing recently due to this and the late renewal has also increased this makes us to
pay “contingent binder”.

4. The FIFO system should be followed for all the requests by all departments, or at least the
policy should be the same over all depts., because different departments are following
different policies for processing policies. By giving equal priority to all we will probably
reduce backlog (because RERUNs is close to 68% of the total backlogs)

5. We can give incentive or overtime to UT based on number of insurances they complete per
day so that they are able to process backlog.

6. The processing time by RT’s and PW’s can be reduced further with the aid of computers and
hence number of employees required in these processes can be reduced.
Exhibit 1: Process Flow Diagram

Exhibit 2: The Ideal Situation:

Operating Activities
DIST UW RT PW
Daily Activities 40 40 40 40
Average Time (mins) 40 30 70 55
Total Time (hrs) 26.7 20 46.7 27.5
Capacity Available 30 22.5 60 37.5
Utilisation 89.00% 88.89% 77.83% 73.33%
Exhibit 3: TAT Refined Calculation:

TAT on Mean Time of Completion (MTC)

RUN RAP RAIN RERUN TAT(days)
Requests 1 3 1 11
Average/DC 0.25 0.75 0.25 2.75
Distribution 0.3167
MTC 68.5 50 43.5 28
Time Reqd. 17.125 37.5 10.875 77
Requests 4 10 7 47
Average/UTT 1.33 3.33 2.33 15.67
UT 1.1789
MTC 43.6 38 22.6 18.7
Time Reqd. 58.133 126.667 52.733 292.967
Requests 5 12 8 54
Average/RT 0.625 1.5 1 6.75
RT 1.5986
MTC 75.5 64.7 65.5 75.5
Time Reqd. 47.19 97.05 65.50 509.63
Requests 5 NA 9 56
Average/PW 1 NA 1.8 11.2
PW 1.6207
MTC 71 NA 54 50.1
Time Reqd. 71 NA 97.2 561.12
Total TAT 4.71

Exhibit 4: Backlog Analysis:

Backlog DIST=16 UT=68 RT=79 PW=82

1 1 1 1
3 3 3
RUN=5
1 1
0
3 3 3 3
7 7 7
RAP=12
2 2
NA
1 1 1 1
6 6 6
RAIN=9
1 1
1
11 11 11 11
36 36 36
RERUN=56
7 7
2
TOTAL=82
RERUN% in Total Backlog= 56/82= 68.29%
Backlog at UT Alone= 52/82 = 63.41%
Exhibit 5: Capacity Calculation of each UT Team

UT Team 1 (Territory 1) UT Team 2 (Territory 2) UT Team 3 (Territory 3)

No. MTC Total Time No. MTC Total Time No. MTC Total Time
RUN 162 43.6 7063.2 100 43.6 4360 88 43.6 3836.8
RAP 761 38 28918 513 38 19494 524 38 19912
RAIN 196 22.6 4429.6 125 22.6 2825 130 22.6 2938
RERUN 636 18.7 11893.2 840 18.7 15708 605 18.7 11313.5
Total 1755 52304 1578 42387 1347 38000.3
Avl.Time 54000 54000 54000
Capacity 96.86% 78.49% 70.37%

Renewal Lost %Total

UT 1 403 43.52%
UT 2 227 24.51%
UT 3 296 31.97%

Exhibit 6: Capacity Calculation of each Team:

DIST UT RT PW
Total Total Total
Number MTC Time MTC Time MTC Time MTC Total Time
RUN* 624 68.5 42744 43.6 27206.4 75.5 47112 71 44304
RAP** 1524 50 76200 38 57912 64.7 98602.8 NA
RAIN 451 43.5 19618.5 22.6 10192.6 65.5 29540.5 54 24354
RERUN 2081 28 58268 18.7 38914.7 75.5 157115.5 50.1 104258.1
Total Time 196830.5 134225.7 332370.8 172916.1
Time
Available 216000 162000 432000 270000
Capacity Util 91.13% 82.86% 76.94% 64.04%

*Includes RAP Converted to RUN

**Excluding RAPs converted to RUN

Team DIST UT1 UT2 UT3 RT PW

Capacity 91.13 96.86 78.49 70.37 76.94 64.04
Exhibit 7: Some other Calculations:

Percentage of RAPs in policies 1798/4680 38.42%

Percentage of RAPs not converted to RUNs 1524/1798 84.76%
Percentage of policies not processed by Policy Writers 1524/4680 32.56%
Demand for the first three stages 4680/120 39 policies/day
Demand for the last stage 3156/120 26.3 policies/day

Mean Time per Process

RUN RAP RAIN RERUN
DIST 68.5 50 43.5 28
UT 43.6 38 22.6 18.7
RT 75.5 64.7 65.5 75.5
PW 71 NA 54 50.1
Total Time 258.6 152.7 185.6 172.3