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Manzana Insurance

Manzana Insurance

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Published by Sweetya Chaudhary

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Published by: Sweetya Chaudhary on Nov 05, 2011
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06/21/2015

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Manzana Insurance: Help 1

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The Manzana Case Manzana Insurance- Fruitvale Branch Case Study
The Manzana Case Manzana InsuranceFruitvale Branch case study Executive Summary The Fruitvale Branch of Manzana is facing its bitter reality of declining profitability and potential loss of market shares to its main competitorGolden Gates due to its rising renewal loss rate and expanding turnaround time. In our analysis, we dig into several issues that were possible causes for the problem and tend to provide readers with feasible solutions that may resolve the issues on hand. Examples of such issues as we have identified in the case include, but not limited to, various departments’ deviation from FIFO system, potential capacity and staffing problems, uneven workload among three underwriting teams, outdated SCT for computing TAT, and inaccurate computation process for TAT. In order to lower the number of late renewals and reduce turnaround time, our recommendations include, but not limited to, the following: 1) Making it mandatory for all departments to comply with the FIFO system and implementing monitoring plans for overseeing the entire underwriting process to ensure FIFO is strictly implemented; 2) Revising the incentive scheme for Fruitvale Branch employees to further assist with the successful implementation of FIFO system; 3) Expanding the number of days RERUNs are released to DCs prior to the due dates to ensure that there is sufficient time for relevant departments to complete the requests on or before due dates; 4)Revising and updating the SCT used for deriving TAT; 5) Modifying the computation process for deriving TAT as the process being used is inaccurate and provides an exaggerated figure for TAT. Current Situation

In considering this case on hand. and the last letter C indicates the number of servers (C denotes multiple). By setting out and effectively adhere to this smaller objective. In order to identify problems existing at the Branch. Also. One of the smaller objectives the Fruitvale Branch should set out and convey to its employees is the importance to fully comply with and not deviate from the FIFO system. where the first letter M labels random arrivals. the second letter M labels random services. we need to know how the various financial data is determined and computed. its financial position. It meets the qualification of M/M/C queue. we know that the number of server is multiple in all types of services. with exponential interarrival and service times. However. Manzana should focus on its control over the compliance with the FIFO system by its various departments. In this case.The main objective of the Fruitvale Branch should be to improve its financial performance in terms of revenues and sales growth in comparison with previous years and to retain and gain market shares from its main competitor-Golden Gates. the Manzana has gradually lost control over insurance rates and commission schedules as they have become identical among competitors. Therefore we are going to use formulas . the Manzana should fully utilize its control over turnaround time and consequently improves its service performance and ultimately. In this case. we are interested in the process and data from which the turnaround time is derived along with other financial data in determining branch’s capacity and staffing condition. and we assume that arrivals and services are pure random. and thus inappropriate to be used in determining the turnaround time. we can conclude that the turnaround time using the outdated SCT is an inflated figure as the process time has been decreased significantly with the introduction of technological computerization. As the competition in the insurance industry intensifies. each request is lined up in a single queue until the next available server processes it. Although we are given the SCT data in computing the TAT. In order to gain a competitive edge. this data may be outdated based on our assumption that the SCT for each processing step was completed before the introduction of desk computers and other technological changes. all these objectives may turn into non-sense if the branch cannot solve its existing problems throughout its operations. the main objective of the Fruitvale Branch can be achieved. In particular.

we can get the average inter-arrival rate (λ) of each server group by dividing the its total number of requests (L) by the expected waiting time of a request (W). We use the data of the first six months of 1991 from Exhibit 6 and Exhibit 7 to generate the mean inter-arrival time to each server group. The turnaround time in terms of the number of days at the Fruitvale Branch is far greater than that at the Golden Gate. Unless the request is a RAP. By using the Little’s Law (L=λW). All requests will go to the Distribution Department first. The second issue on hand is the turnaround time. and we have to do it to analyze the capacity. According to the case data. As the competition in the insurance industry intensifies. Additionally. the Policy Writing Department will finish the last step of writing an insurance policy. Analysis of Possible Causes To figure out how Manzana Insurance inside operation works. and this gap is still expanding. Once we have the λ for each server group. The Rating Department will work with all the requests that are passed from the three underwriting teams. . we can know their respective mean inter-arrival time. improving this area is both urgent and essential. and then the distribution clerks will decide which underwriting team will handle each request. its main competitor. we should identify the job flow sequence first. Since the renewal losses represented a significant loss of business and an overall reduction in the number of policies in force. the renewal loss rate at the Fruitvale Branch had increased dramatically from 33% to 47% in the previous year. coefficient of variation formula is included because it is used to determine the likelihood of variability of processing time. Major Issues at the Fruitvale Branch The issues needing the most attentions from the Fruitvale Branch are its sharp increased renewal loss rate and its inability to keep its turnaround time in line with other competitors such as Golden Gate. competing for clients and better financial position stems from the ability to provide with better services of which the turnaround time is one such measure given the fact that insurance rates and commission schedules had become nearly identical among competitors.relevant M/M/C in our analysis (Formula Sheet is attached as Appendix 5). which is known as 1/λ.

we should consider all the incoming requests. we can see that the mean inter-arrival time to the Distribution Department is 0.The mean inter-arrival time for each server group is shown in the table below.2852 | A few points have to be notified.75 | 0.20 | 0.51 | 0.5703 | UW Team 3 | 1.2852 hour. the server’s utilization rate is the average number of requests in service per hour.1923 hour.1923 hour. which include both processed and late requests. c refers to the number of servers in each server group.20 | 0. The server’s utilization rate can indicate how well the server uses its finite capacity. which means the average time between each arrival of requests is 0. the output is smaller than capacity. In our case. The same intuition also applies to the other departments.95 | 0. Detailed calculation can be found in Appendix 1.1923 | Policy Writing Department | 3. we should keep in mind that the number of RAPs for the Policy Writing Department is zero. Normally for a stable system. for the following three steps. This means that.5128 | UW Team 2 | 1. Server Groups | Average Inter-arrival Rate per Hour (λ=L/W) | Mean Inter-arrival Time per Hour (1/λ) | Distribution Department | 5. Then all the processed requests will be allocated to different underwriting teams. We can use the formula ρ = λ/(c*μ) to calculate the utilization rate of each server group. Moreover. Here.1923 | UW Team 1 | 1. and μ is the department specific service rate.50 | 0. Since all requests will go to the Distribution Department first. | Utilization Rate per Hour (ρ = λ/(c*μ)) | Capacity per Hour | . those late requests will not be passed on. when we calculate this server group’s interarrival rate. such as the average time between each arrival of requests to the Policy Writing Department is 0. From the resulted data.6682 | Rating Department | 5.

at each stage of the underwriting process.71 | 2. If the rate is less than one. Identifying Possible Causes i) Deviation from the Current FIFO System due to Prioritization Currently the company is operating in FIFO. By using various formulas mentioned earlier in this report. However.11 | Rating Department | 0. and summing up the expected time on each department. it means that all incoming request can be complete within capacity. Taking the average of the expected time spent of the 3 underwriting teams. which is lower than what we had earlier. As a result. including its waiting time and its processing time.4 days (Detailed Calculation in Appendix 3). and employees’ salary bonuses are linked to the number of RUNs they have processed.64 | 5.76 | 6.85 | UW Team 1 | 0. Otherwise the capacity is exceeded.11 | UW Team 3 | 0. we get the total flow time equal to 5.83 | 2. The flow time is the total expected time of a request in a queue.Distribution Department | 0. leading to a greater renewal loss rate.11 | UW Team 2 | 0. the expected time spend on a request in each department can be calculated by computing the equation W = Wq +1/μ. but still a lot higher than the competitor’s turnaround time. RUNs and RAPs are given priority over the other 2 policy requests because they provide with a greater profit margin. Based on . first-in-first-out system.47 | Utilization Rate is a measure of steady state. ii) The Problematic Incentive Scheme The incentive scheme implemented by the Fruitvale Branch contradicts with their company’s policy to use a first-in-first-out system. the number of late RERUNs has soared significantly.82 | Policy Writing Department | 0.92 | 2. The detailed calculation of TAT flow time involves using utilization rates.89 | 5. meaning that all requests are processed in the order according to their arrival time.

the branch is currently overstaffed since none of the services exceeds the capacity. The rates we have calculated are based on historical average information. This incentive program lures employees away from sticking to its FIFO system in the sense that employees tend to process new policies first regardless of their arrival time since writing new policies are made more lucrative than processing other policies. all requests were supposed to be processed in the order in which they arrived. delays and late requests are likely to happen. in turn. The problem is more severe in Distribution Services and Underwriting Team #1 and #2. it is possible to have an unexpected long processing time on a number of requests. This means that we reach the steady state: the output does not exceed input. To illustrate. and we have assumed that the arrivals are pure random. it assumes that other processing activities were halted until the previous activities were finished. . which leads to a utilization rate exceed 100%. the utilization rates of most of the services are close to one. We are definitely understaffed if that situation occurs. First of all. and so on. However. according to the Exhibit 3. Receiving an annual salary plus an incentive payment for each new policy written above their established quota is the compensation program for all Fruitvale’s underwriters and branch managers. If any requests take longer time than usual. The risk of being close to 100% is to be unable to handle possible variability of the number of incoming requests. iii) Capacity and Understaffed or Overstaffed Problem According to the capacity for different types of services given in the rough calculation. and so are the services. This assumption is problematic because it distorts the true processing time required for each activity. results in the distortion of TAT. according to the detailed calculation in Appendix 2. the underwriting teams begin their processing activities after their downstream distribution department has completed their work. iv) Inaccurate Computation Process for TAT The turnaround time as calculated in Exhibit 3 is misleading as the computation process from which the TAT is derived in inaccuracy. and rating department only process their work after their down-stream underwriting team has finished their activities.the FIFO system. Therefore. which.

from which the standard completion times sufficient to handle 95% of all requests bad been assigned to each processing step. if we assume this average time required is up-to-date. Solutions and Recommendations In order to make corrections in the two main issues addressed above. the numbers were not up-to-date. we think it might be misleading to use the 95% SCT instead of using 100% SCT because the remaining 5% of requests may require more time to complete. In addition. We think this SCT was misleading because it was completed before the development and introduction of desktop computers in the policy rating and writing department. we have to make assumptions corresponding to the situation. the SCT that was still being used in computing TAT is outdated. the time required to process an average policy in these departments had decreased significantly during the late 1980s and early 1990s. the current turnaround time is computed based on the SCT completed in 1986.Moreover. and the exclusion of this 5% would lead to the distortion of TAT from its true value. v) Problems with the Rating and Policy Writing Department Based on the information provided in the case. Because we do not know if these two numbers were updated after the introduction of desk computers in these two processing stages. If. and it overstated the true standard processing time required to compute TAT. will they be able to compete with their main competitor-Golden Gate. These two numbers combined represents a significant portion of the total processing time. and the average time required per request is 55 minutes for the Policy Writing Department. As a result. then they will have to update the information to make the them more relevant in computing other important data. we recommend that the Fruitvale Branch should take the following actions. First of all. however. the average time required per request is 70 minutes in the Rating Department. we can conclude that the Fruitvale branch hasn’t utilized its technological development efficiently to reduce its processing time required in these two stages. . As we know from the case. and only when they can fully utilize their technological developments.

In addition. In addition. CV denotes for coefficient of variation of request processing time. even though none of the utilization rates exceed 100% according to our calculation. distribution service and underwriting teams #1 and 2 have comparably high utilization rates close to it. As it is a clear contradiction to the FIFO system. That is. and only Underwriting Department has a CV of 0.First of all. the computer-generated RERUNs should be released to DCs several days before the due date to ensure the rated renewal policies can reach independent agents before due date. the first-in-first-out system must be strictly implemented. we notice that the FIFO system cannot be fully complied until the branch’s current incentive scheme is modified. The Fruitvale Branch should set out strict rules and monitoring plans and deliver this message clearly to every employee that is in control of his or her department. signaling a lack of flexibility to the variability of request arrivals. the current payment incentive scheme rewards only new policies written instead of rewarding all policies written regardless of their profit margin. As we have discussed in the preceding paragraph of the analysis. Currently we have CV below 1 for all types of services at all departments (See Appendix 4). the incentive scheme should be modified so that not only the new policies are rewarded. On the other hand. Most of the departments have low CVs. the utilization rates for other service are not high. . which signals moderate variability. and perhaps more employees for underwriting are desirable. Therefore we may be understaffed for that position. but other policies are also rewarded.79. However. Manzana and the Fruitvale Branch should focus on utilizing its technological developments in the Rating and Policy Writing Departments to reduce its processing time. Also. and it indicates a high variability if CV exceeds 1. and their CVs are low in value: they are not understaffed. Moreover. the problem is not as terrible as it looks. which means that variation in processing time is unlikely to happen. all departments must fully comply with the FIFO system regardless of the profit margin generated from each of the insurance policy. or they should update and revise their processing time data in the two departments. and any violation of the FIFO system should be warned and taken corrective actions to in accordance to its rules and monitoring plans.

Help 2: .Lastly. the computation process for deriving TAT should be revised based on the updated SCT.

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