Operational Analysis - Manzana Insurance

Fruitvale has the following issues

a) Turnaround time in processing has been increasing. In Q2 1991, they recorded a TAT of 6 days/policy (as of 5 days/policy in Q2 1990). As a result, they are losing business and agents have been recommending Manzana's competition.

b) They have seen increase in delays in processing renewals (44% in Q2 1991 as compared to 20% in Q2 1990). Late processing of renewals has resulted in loss of revenue and profits.

c) In addition to this they have unilaterally lost renewals marked at 47% in Q2 1991. This is because of high TAT as well as lost confidence on part of their agents.

d) We find that their staff is not being optimally utilized on two accounts

a. On an overall basis across territories we find the capacity utilizations of each division (Distribution, Underwriting, Rating, and Policy Writing) to be 91%, 84%, 77% and 64% respectively. This data was extracted using distribution of policies processed (Q2, 1991 from Exhibit 6) and the mean times per process per employee/team where applicable (Exhibit 4). The table (Capacity Utilization Q2 1991) illustrates the calculations. We have illustrated the utilizations in terms of both units of capacity which is time utilized (Table 1) as well as against number of policies processed in a quarter (Table 6). You will find the utilizations matching.

b. We also find across territories, as shown in Table 5 that the underwriting team allocated to territory 1 is almost working at full capacity unlike their peers. The skewed utilization is correlated with this territory registering the largest number of losses in renewals.

2. WHAT ARE CAUSES OF THESE PROBLEMS

1. Processing Renewals:

a. Lower prioritization for renewals in spite of these being a high proportion of total requests.

b. Renewals are also maximum revenue spinners as per Exhibit 5. The priority given to Renewals is surprising especially as it is based upon some historical assumptions and an illusion caused due to lower commission rates against each renewal compared to an equivalent new policy (7% for renewal versus 25% for new policy)

c. Overall even though the company policy is to process requests using the FIFO method, various teams are using their own internal prioritizations while processing requests.

d. Renewals are not released until the penultimate day prior to the due date as per the case. This is in spite of the computerized system generating renewal requests 30 days prior to the anniversary date.

e. As per the data given in Exhibit 7, we find that maximum renewals have been lost in Territory 1. This is primarily because the Underwriting team assigned to Territory 1 is utilized at 98% capacity.

2. John Lombard has been using