MANZANA CASE REPORT

Problem Definition: This case study focuses on the operational inefficiencies of the Fruitvale branch of Manzana Insurance Company. The major areas of concern includes: high Turnaround time (TAT), the turnaround time is the total time taken to process a request. At present Manzana s TAT is around six days compared to one day TAT of its major competitor Golden Gate Insurance firm. To reduce the TAT time to less than one day at par with its competitor, the current bottleneck process in the system is identified and the work flow is balanced. The inappropriate work force distribution at Manzana makes some workers to be idle and others being stretched to work, making the system inefficient. There is significant proportion of policies which are being renewed late, this is primarily because the policies which are required to be renewed (RERUN) are being intimated to the customer only in the last day which results in loss of business. The issue is addressed by notifying the customers 30 days prior to the due date giving sufficient time to the customer to renew the policy. The various departments in Manzana have different priorities resulting in backlog of policies. The system is prioritized based on the profit generation of various processes, with priority given in the following order RUNs, RAPs, RAINs and RERUNs. The salary plus program offered to retain workers in Manzana is not aligned towards the profitability of the company. Hence the structure should be aligned more towards the profitability and not on the type of policies.

As Manzana faces a stiff competition, there are chances that they might lose business if the agents tend to look out to do more business with Golden Gate Insurance. Hence it is highly important for Manzana to implement some of the above suggestions so that they can stay in business. Analysis: The process flow for the operations at Fruitvale branch of Manzana was analyzed using the simulation software Extend. The processes were simulated with six different cases and the results were compared to settle on the optimal case (refer appendix Model 1). The present

operating condition is considered to be the base case and the simulation results depicted its TAT to be 4.8 days, here underwriting is the bottleneck operation with utilization of 99%. (Refer appendix Table 1) The profit from the operations was around 26.7 million dollars and

its maximum queue length was 83 requests. The two other cases were simulated with change in priorities alone. In the second case the current system was modified with equal priority given to RUNs, RAPs, RAINs and RERUNs, the TAT was reduced from 4.8 days to 1.94 days. Though there is a significant decrease in the TAT, still it is incompetent when compared to its competitor s TAT. RERUNs are the highest number of requests that come into the system, but since the profit margin of RUNs is higher when compared to RERUNs, they were given the lowest priority which had resulted in renewal loss rate of 47%. Also, the salary plus payment structure for the employees at Manzana favored processing of new requests, RERUNs were given least priority. To reduce this high loss rate the RERUN operation along with RUNs was given highest priority

and second priority to other two processes (refer appendix from 1.94 days to 1.2 days.

Model 2). The TAT was reduced

In all the above three cases the bottleneck was the underwriting process at territory 1 and the policy writing team was underutilized. To balance the work flow the resources were shifted from policy writing to form another underwriting team in territory 1. This reduced the TAT to 0.67 days with maximum queue length of 8 requests. The reduction in TAT is highly important for Manzana to stay in the business and retain its market share. If this TAT is not reduced the agents might slowly turn towards its competitor, Golden Gate. This presents an optimal case with TAT less than a day, increase in profit by $2.9 million and reduction of lost orders from 3035 requests in the base case to 2455 requests (Refer appendix Table 2). The agent s commission structure of 25% per policy for RUNs and 7% per policy for RERUNs has a significant impact on the profitability of Manzana. Though RUNs generate highest revenue per policy the higher commission given to agents makes RUNs less profitable when compared to RERUNs. (Refer appendix - Table 3). The profit calculation has been made by considering 100 requests of each type. The calculations depict that out of different policy types RERUNs has the highest profitability. Conclusion and Recommendations: The key problems identified in the Fruitvale branch of Manzana are high TAT, inappropriate work force distribution and backlog of policy requests. The above problems have been addressed by changing the priorities and shifting of resources to the bottleneck operation. The TAT has been reduced to less than a day which would make Manzana at par with its
3

competitor and hence it would be assured of its market share. The number of requests for RERUNs has been high compared to the other requests, by assigning equal priority to RUNs and RERUNs and shifting of resources the problem of backlogging, high TAT, inappropriate work force distribution has been solved. The suggestions involve only shifting of existing resources and hence there is no implementation cost involved. Though some of the other solutions would also reduce the TAT, the optimal case suggested above would result in higher profits, less number of orders lost, balanced work flow and no implementation cost making Manzana a fierce competitor in the insurance market. A detailed plan is certainly necessary for a successful implementation of the suggestions, however the case study does not expose to other details like wages paid to workers and cost of overtime. Once these additional information are collected, a better clarity would be obtained before implementing these suggestions. In addition to the changes

suggested, an increase in the commission rate to the agents from the existing rate of 7% for renewal requests, would entertain them to bring more RERUNs and hence increase the revenues for Manzana.

Appendix: Table 1: MODEL PRIORITIES TAT ( days ) BOTTLENECK

RUNs 1 RAPs 2 1 RAINs -3 RERUNs -4 RUNs 1 RAPs 1 2 RAINs -1 RERUNs -1 RUNs 1 RAPs 2 3 RAINs -2 RERUNs -1 RUNs 1 Shift in resources RAPs 2 ( Optimal Case ) RAINs -2 RERUNs -1

4.8

Underwriting

1.94

Underwriting

1.20

Underwriting

0.67

Distribution

Table 2:

PROFIT CALCULATION FOR BASE CASE REQUEST TYPES RUNS RAINS RERUN NUMBER 1276 912 4214 GROSS PROFIT PER POLICY 4942.0 590.7 5715.8 TOTAL 6306033.5 538746.7 24086483.9

TOTAL PROFIT $

30931264.1

PROFIT CALCULATION FOR OPTIMAL CASE (AFTER SHIFT IN RESOURCES ) REQUEST TYPES RUNS RAINS RERUN NUMBER 1243 901 4766 GROSS PROFIT PER POLICY 4942.0 590.7 5715.8 TOTAL 6142946.4 532248.7 27241618.9

TOTAL PROFIT $

33916814.0

Table 3:

CALCULATION FOR MOST PROFITABLE TYPE OF REQUEST REQUEST TYPES # REQUESTS 100 100 100 PREMIUM PER POLICY ( $ ) 6662.58 645.63 6205.08 TOTAL PREMIUM ($) 666257.67 64563.11 620508.00 COMMISSION FOR AGENT ( $ ) 166564.42 0.00 43435.56 PROFIT ($) 499693.25 64563.11 577072.44

RUNs RAINs RERUNs

8
Model 1: Base case

Model 2: Optimal case (After shift in resources)