Manzana Insurance

2015 Spring

BUS 473 D100

Case Analysis Report II

Professor: Sudheer Gupta

TA: Luke Segar

Prepared by:         Aero 5        

Members:

Sylvia Cai (sca149@sfu.ca)

Louis Fong (yfong@sfu.ca)

Ivy Hu (yuanjinh@sfu.ca)

Ashaab Khalid (akhalid@sfu.ca)

Manzy Lu (manzingl@sfu.ca)

1. Why have profits been deteriorating over the past year?

The increase in average turnaround time (TAT), from 3 to approximately 6 days deteriorated Manzana’s profit. This increase is crucial at Fruitvale since Golden Gate has an average turnaround rate of 2 days and is now guaranteeing a 1 day turnaround rate to their clients.

There has also been an increase in RERUNs being completed after due dates resulting in an increase in renewal loss rate from approximately 33% to 47% in 1990. Such a high renewal loss rate could cause agents to refer their customers to other carriers leading to a loss of business.

An underlying cause of deterioration of profits was Fruitvale’s distribution of workforce. The Rating and Policy Writing departments both seem overstaffed resulting in higher costs for Fruitvale. Additionally, the Underwriting Department is also experiencing an uneven workload. This may also add to the costs.

2 What is the essence of competition between Manzana and its main competitor, Golden Gate?

The essence of competition between Manzana and Golden Gate is the TAT for policies. At the moment the average TAT for Manzana (Fruitvale) is 6 days while for Golden Gate it is 2 days. The competition has gotten even more intense as Golden Gate announced a guarantee 1 day turnaround to all agents and a 10% premium discount on any delays. The originating agents usually check a company’s TAT and refer their customers accordingly. Maintaining cooperative relations with agents is also a basis of competition between Manzana and Golden Gate as such relations with independent agents played a role in sustaining market share and profitability.

3. What are the sources of variability in the system?

The main source of variability in the system is the different processing times due to the different procedures for different requests. RUNs have a basic processing procedure and have a processing time of approximately 89.3 minutes (1.49 hours). RERUNs are triggered automatically through a computerized ticker system and have a processing time of approximately 750.4 minutes (12.51 hours). RAINs are processed in a fashion similar to RUNs but differ in processing times as the time required by the departments to reprice the policy varies. The average processing time for RAINs is 129.8 minutes (2.16 hours). RAPs also have a similar handling as RUN; however the transfer to the Policy Writing Department is not automatic resulting in variability. RAPs have a processing time of 133.1 minutes (2.22 hours).

Fruitvale also applied a FIFO system when dealing with the requests causing variability. This system however was only operating within the two policy classes, meaning RUNs and RAPs were given priority over RAINs and RERUNs. Underwriters work on RUNs and RAPs first and then begin work on RAINs and RERUNs.

Another possible source of variability in the system is the different due dates assigned to all requests, which were based on the total number of requests being handled by each branch.

4. How heavily are Fruitvale's resources utilized? Do you agree with Tom Jacobs that the branch is overstaffed? Where is (are) the bottleneck(s) in the system if any?

Fruitvale resources are heavily utilized. The utilizations of the distribution clerks and the underwriting team for territory 1 and 2 were high at 89%, 92% and 83% respectively. In the underwriting team for territory 1, the average queue length, flow time, and percentage of time a request being idled were all high with values 11.1 requests, 0.82 days (or 6.15 hours), and 92.3% respectively. In the underwriting team for territory 2, the percentage of idle time was high at 82.3%, although the queue length and flow in the process were low (4 requests and 0.371 days). These results show that underwriting team for territory 1 and 2 were not only highly utilized, but were also the bottlenecks, given they have the highest and second highest flow time. Therefore, the Fruitvale branch is understaffed in the underwriting teams instead of overstaffed.

5. What is the theoretical flow time of a RUN and of a RERUN? Why is Manzana quoting an average of six days TAT for a RUN? Do you agree with the way Manzana determines its TAT?

We disagree with Manzana’s calculation of TAT due to some problems with the TAT measurement system. Manzana’s current computation assumes a FIFO system and backlogs (or requests) were sent in batches which would maximize the theoretical flow time for all requests. That is, each department starts work after certain throughput days within which the previous department clears its backlog. This assumption inflates the TAT for highly prioritized requests. Since RUNs are highly prioritized by all departments, their wait time and flow time should be the shortest, which is 5.18 days or 6 days. While RERUNs has the lowest priority, their flow time would be 8.2 days or more. Appendix B shows a more detailed calculation of TAT for highly prioritized requests for the week ending 6 September 1991.

Another cause of the ineffectiveness of the calculation was the ignorance in the variability in demand to each of the processing team. Since each underwriting team only serves their own territory, the inflow rates were different. Assuming the capacities of all teams are equal, the throughput rates would be different. In Fruitvale branch’s calculation, the three teams were considered receiving equal number of requests.

6. What is your assessment of the rules used to assign priorities at Fruitvale? Does it make sense to give priority to RUNs over RERUNs? Are RUNs really more profitable than RERUNs?