CASE STUDY ANALYSIS

MANZANA INSURANCE:
FRUITVALE BRANCH

Submitted to:

Prof. Anshuman Tripathy

Group 9:
Akash Bhagat      2011454
Aditya Bhat      2011456
Harsh Dalal      2011463
Ritika Goel 2011466
Ali Rizwan Rizvi 2011500
Divya Priya        2017041
Introduction
Manzana Insurance was founded in California in 1902. It grew to become specialized in home
and commercial property insurance and became the second largest insurer in that space by
1953. However, in the 1970s, it faced intense competition from Golden Gate Casualty which
resulted in intensive marketing, cost cutting and improving underwriting standards in Manzana.
After facing considerable losses in early 1980s, Manzana adopted a strategy to focus more on
property insurance because of which a small branch like Fruitvale focused on property
insurance alone.
Each branch In Manzana operated as a separate profit and loss center responsible for handling
policies in its territory. In Fruitvale branch, there were 4 departments to handle property
insurance policies: Distribution, Underwriting, Rating and Policy writing. There were 4
distribution clerks, 3 underwriting teams, 8 raters and 5 policy writers working in the respective
departments. Also, there were typically 4 types of policies handled by these departments: RUN
(Request for Underwriting) for a new commercial policy, RERUN (Request for Renewal) for
renewal of existing policies, RAIN (Request for Additional Insurance) for amending the terms of
existing policy and RAP (Request for Price) for requesting a price quote which was the only type
of policy that did not go through policy writing department.
The performance figures of the Fruitvale branch have been declining every quarter since 1989
and in the second quarter of 1991, the branch was at the bottom of the list of all branches of
Manzana. The increasing turnaround times, loss in renewals and declining profits are becoming
a cause for concern. At the same time, the other companies and especially Golden Gate branch
in the same territory was showing moderate growth rates and have much lower turnaround
times.

What are the concerns that Manzana’s Fruitvale branch faces and what is
causing them?
1. The capacity utilization of our employees is poor in rating (76.27%) and policy writing
(63.97%) divisions. This indicates that the number of employees in the branch are more
than required. A low value of utilization also features because Mr. Tom Jacobs had
approximated the number of requests to a higher than real value.

2. Turnaround time (TAT) for Manzana – Fruitvale is 6 days on an average while it is 2days
for its competitor Golden Gate. This poor TAT may cause the agents to defect to Golden
Gate, which has promised a TAT of just one day.
 3. High number of renewals backlog and increasing loss of renewals: The number of late
renewals has doubled from 20% in the second quarter of 1990 to 44% in the same
second quarter of 1991. This could be because Fruitvale branch did not follow the FIFO
company policy and prioritized RUNs and RAPs more than RAINs and RERUNs as they
considered the latter to be less profitable. Therefore, they generated RERUNS on the
last day before it was due and thereby created an increasing pile of renewals backlog.
Due to this, the renewals loss rate in the second quarter of 1991 increased to 47% while
Golden Gate had only 15 % loss rate in the same quarter. In fact, the revenue from
renewals accounted for 74.2 % of the gross revenue in 1991 which is much higher than
the revenue from new policies and endorsements (Exhibit 5).

4. Decreasing profits: There is a decrease in profits consistently from 1989 to 1991 in every
quarter. The decrease in profits is due to the huge increase in ordinary insured losses
and expenses while at the same time the revenue growth from new policies,
endorsements and renewals has only marginally increased. This is because the
increasing loss of renewals have created a stagnation in the number of policies being
processed and hence revenue generated has not kept pace with increasing losses and
expenses. In 1991, the renewals lost accounted for 30.8 % of the renewals available
(Exhibit 7).

Process flow: -
All requests received by Manzana follow a similar operations flow. Any customer request is
received by the Originating Agent. In a day, it is estimated that an Originating Agent will bring
39 requests forward to the Distribution Clerks. There are 4 Distribution Clerks who would
process the requests and forward them to the Underwriting Teams.
Now, using data in Exhibit 7, we find that total requests received by Team 1 in a day is 14.625.
To calculate the same, we added to number of RUNs originating as RUNs, Total Raps, Rains and
Reruns. This gives us the total requests received in 6 months. Hence, to get per day requests,
we divide this sum by 120 (20 working days a month).
Similarly, we do the same for Team 2 and Team 3 and find that the requests received by them
are 13.15 and 11.225 respectively.
These requests after being processed by the Underwriting Teams, are sent to the Rating Agency
where there are 8 Raters. Further, 15% of all RAPs and all the other requests are transferred to
the 5 Policy Writers.
Total RAPs per day can again be calculated using Exhibit 7 of the case. Total RAP obtained for
the year 1991 is 1798 which then divided by 120 days. This number comes out to be 14.98. 15%
of 14.98 + (39-14.98) = 26.26
Thus, in a day, 26.26 requests are passed to policy writing team.

Is the Fruitvale branch calculating capacity correctly?

As per Table 2, The Fruitvale branch has used correct method to calculate capacity. For each
team it has multiplied number of resources to daily working hours. But it has rounded up the
available time and number of requests per day. Also, it has assumed 75% of daily requests in
the Policy Writing department. Because of these reasons, utilization achieved is less accurate.
As mentioned in the Table 3, the Fruitvale branch can calculate utilization & capacity without
rounding any data. As, per calculation mentioned in process flow, we can obtain 26.26 requests
for Policy Writing Team. Therefore, it gives more accurate utilization.

What should the Fruitvale branch (Bill Pippen’s recommendations) do?

1. Using Mean time instead of 95% SCT time:
Based on the time details given in Exhibit 4, we used the 95% SCT time to calculate the
total minutes and subsequently based on the number of policies received in 1991 from
the last part of Exhibit 7, we tabulated the total time in minutes for processing all those
requests. Since capacity utilization can be given as the ratio of total time utilized in
minutes and available maximum number of minutes, we found the capacity utilization
to be 128.07% as seen in Table 5. This is not possible as the capacity utilization cannot
exceed 100%.
Note that here the available max number of minutes is calculated by multiplying the
number of working hours per day (7.5), number of working days (20), no. of months (6
in 1991), number of resources available (20) and the number of minutes in an hour (60).
Also note that the number of RUNs considered is the sum of original RUNs and RAPs
converted to RUNs and the number of RAPS is the difference of original RAPs and the
number of RAPs converted to RUNs. [Exhibit 7]
Hence 95% SCT is not the correct method to find the capacity utilization. Also, SCT time
is the fixed time for completion of a task, pre-decided by the company and this could
vary from the actual time taken by the teams. Based on Exhibit 4, we see that the min,
max and mean times are drastically different from the 95% SCT time. A better
alternative would be to consider the mean of all the times taken by the resources for
each type of request (RUN, RAP, RERUN, RAIN).
 Hence using mean time, we find that the Capacity utilization is reduced to 77.44% which
is a more realistic measure as seen in Table 6.
Similarly, the Total Throughput time is also calculated based on the 95% SCT time which
was proved to be inaccurate previously. Using mean time, we find that the actual TAT
comes out to be 4.71 days, which is almost half of the previously calculated 8.2 days as
seen in Table 7.
2. Not prioritizing RUNs over RERUNs:
As we see from Table 1 the RERUNs are getting more premiums compared to RUNs
because of the huge difference in the Agent’s commission percentage. We see that the
revenue generated by RERUNs is greater than that generated by RUNs by 14.43% in
both 1991 &1990, and by 11% in 1989. Also, as per the statements by Rating team, we
know that RERUNs take just as much time as RUNs.
Hence, we need to strictly enforce the FIFO policy as prescribed by company with the
Underwriting teams, disallowing the practice of prioritizing RUNs and RAPs over RAINs
and RERUNs. This would help in clearing the backlog of requests and would assist in
retaining customers.
3. Increase resource in Distribution team and reduce in Policy Writing team:
As per the status quo, it can be observed that the Policy Writing has the lowest capacity
utilization of 63.97%. At the same time, the Distribution has the highest capacity
utilization of 88.83%. It indicates that employees are not distributed as per load.
Removing one person from the Policy Writing department and adding one person into
the distribution department will give more even load allocations. This results in capacity
utilization 71.07% & 79.96% for the Distribution and the Policy Department,
respectively.
Appendix:
Table-1:

Annual
Commission to Revenue for Percentage
1991 premium
Agents Fruitvale($) difference
revenue($)
RUNS 6724 25% 5043
RERUNS 6205 7% 5770.65 14.43%
1990
RUNS 6101 25% 4575.75
RERUNS 5630 7% 5235.9 14.43%
1989
RUNS 5706 25% 4279.5
RERUNS 5130 7% 4770.9 11.48%

Table-2:

Capacity=
Avg time Time spent
Average Number no. of
per on
Daily of resources Utilization
request requests
requests Resources *60*7.5
(min/req) Daily
hrs
Distribution 40 4 40 1600 1800 88.89%
Underwriting 40 3 30 1200 1350 88.89%
Rating 40 8 70 2800 3600 77.78%
Policy Writing 30 5 55 1650 2250 73.33%

Table-3:

Capacity=
Avg time Time spent
Average no. of
Number of per on
Daily resources Utilization
Resources request requests
requests *60*7.5
(min/req) Daily
hrs.
Distribution 39 4 41 1599 1800 88.83%
Underwriting 39 3 28.4 1107.6 1350 82.04%
Rating 39 8 70.4 2745.6 3600 76.27%
Policy Writing 26.26 5 54.8 1439.28 2250 63.97%
Table-4:

After implementing recommendation of inc. DC by 1 and dec. PW by 1

Capacity=
Avg time Time spent
Average no. of
Number of per on
Daily resources Utilization
Resources request requests
requests *60*7.5
(min/req) Daily
hrs
Distributio 39 5 41 1599 2250 71.07%
n
Underwriti 39 3 28.4 1107.6 1350 82.04%
ng
Rating 39 8 70.4 2745.6 3600 76.27%
Policy 26.26 4 54.8 1439.28 1800 79.96%
Writing

Table-5:

Capacity Utilization

Using 95% SCT time

Total time in
RUNs RAPs RAINs RERUNs
minutes
Distribution 128.1 107.8 68.1 43.2
Underwriting 107.2 87.5 49.4 62.8
Rating 112.3 88.7 89.4 92.2
Policy Writing 89.3 0 72.1 67
Total mins 436.9 284 279 265.2
No. of policies 624 1524 (1798- 451 2081
274)
Total time in 272625.6 432816 125829 551881.2 1383151.8
minutes
Max number 1080000 Capacity 128.07%
of minutes utilization

Table-6:

Using Mean time

Total time
RUNs RAPs RAINs RERUNs
in minutes
Distribution 68.5 50 43.5 28
 Underwriting 43.6 38 22.6 18.7
Rating 75.5 64.7 65.5 75.5
Policy Writing 71 0 54 50.1
Total mins 258.6 152.7 185.6 172.3
No. of policies 624 1524 451 2081
Total time in 161366.4 232714.8 83705.6 358556.3 836343.1
minutes
Max number 1080000 Capacity 77.44%
of minutes utilization

Table-7:

Total
Operating Steps RUNs RAPs RAINs RERUNs Throughput
days
1-Distribution (4 1.00 3.00 1.00 11.00
clerks)
Total minutes 17.125 37.5 10.875 77 0.3166
2-Underwriting (3
teams)
Total minutes 58.13 126.66 52.73 292.96 1.1788
3-Rating (8 raters)
Total minutes 47.18 97.05 65.5 509.625 1.5985
4-Policy Writing (5
writers)
Total minutes 71.1 NA 97.2 561.12 1.6209
TAT 4.7150
Table-8:

1991 Received in 6 months Requests Received/day

Originating Agent 39
Distribution (4 clerks) 39
Territory 1
Total Requests 1755 14.625
Territory 2
Total Requests 1578 13.15
Territory 3
Total Requests 1347 11.225
Rating (8) 39
RAPs 14.98
Rest 24.02
Policy Writing (5) 26.26
RAPs 2.2475
Rest 24.02