Problem AnalysisThe Fruitvale branch of Manzana handled property underwriting i.e., issuing new insurance policies, quotes, endorsements and renewals. It had declining branch profitability. It was suffering from poor turnaround time of 8.2 days and poor percentage laterenewals and loss of renewals. In comparison, Golden Gate consumed a turnaround time of2 days only. The problem faced by the Fruitvale Branch of Manzana Insurance is declining market share and profits, which may be attributed to the following parameters:1) High turnaround time (TAT). Despite being overstaffed in rating and policy writing. The turnaround time of Manzana as compared to Golden Gate is analarming extra 5 days.

2) The backlog of policies had increased since 1989, and the number of new policies and endorsements appeared to be stagnating, whereas Golden Gate reported moderate growth rates.

3) High number of late renewals, causing a rise in the renewal loss rate, which was unattractive for agents. There are issues with the process for handling requests that led to this problem, including the incorrect prioritization of requests (wrong FIFO used) and the uneven distribution of workload amongst the three underwriting teams.

4) Ineffective incentive systems, increase in shift to newer policies, bottlenecks in operation, possible idle capacity in the Rating and Policy Writing teams, etc. Policy ProcessingManzana processes 4 types of policies:RUNS (Request for Underwriting)The Process of writing a new commercial policy began when a distribution clerk received a written request for Underwriting from an agent. The Clerk after performing all the required functions passes it to the Underwriting team to evaluate, select, classify and price it. From there it is passed on to the policy writing department where the actual typing, assembly and distribution takes place.RERUNS (Policy renewal)It dealt with annual revaluation and if necessary re-pricing of risks insured by the commercial policy. The processing was similar to that for RUNS with the difference that renewals are generated by the system. The renewal was done on theanniversary of the policy date.RAIN (Policy endorsement)If there was any physical change in the property being insured, a policy endorsement was needed to amend the terms of theexisting policy. The processing of a policy endorsement was called RAIN.

RAP (Price Quotes)The processing was similar to that for RUN but the difference was that after the rating for the policy was done it was sent back to the distribution clerk, who was responsible for sending a price quote to the originating agent. If it was accepted the quote was sent directly tothe policy writing department.The policies are dealt with on a First In First Out (FIFO) basis while the underwriting team prioritizes them in the order of RUNs, RAPs, RAINs and then RERUNs.

Total number of requests received by theFruitvale branch: 39 per dayFrom Exhibit 7, one can identify thenumber of requests received by eachteam/territory(Number ofRUNS + Number of RAPS + Number of RAINs + Number of RERUNs)/ (20 days *6) Team 1: (162+761+196+636)/120 = 14.625 requests perdaySimilarly for Team 2 and Team 3 itis 13.15 requests per day and 11.225 requests per dayFrom Exhibit 7, number of RAPs is 1798 for 6 months in 1991 or (1798/120) = 15 requests per day. Out of these 15 RAPs request only 15% are converted for policy writing, 15*.15 = 2.3requests per day.24 requests (39-15) aredirectly send for policy writing.The policy writing department therefore actually receives (2.3 + 24) = 26.3 requests perday.Under the present structure, there are three Underwriting teams, with each team for a particular territory. We have calculated the capacity utilization for each territory.Capacity utilization of each department in the process Flow DistributionUnderwritingRatingPolicywritingDistributionUnderwritingRatingPolicymaking

Weighted average processing time per request, min, t41 req/min28.4 req/min 70.4 req/min54.8 req/min

Total capacity= i/t*60*capacity1/41 *60*4*7.5 =43.91/28.4 *60*3*7.5 =47.541/70.4*60*8*7.5=51.141/54.8*60*5*7.5=41.06

Total request per day39393939

Capacity utilization= total request per day/ total capacity89%82%76%64%

Capacity utilization of underwriting teams located in three different territoriesUnderwritingTerritory 1Territory 2Territory 3

Weighted average processing time per request28.428.428.4

Total capacity= i/t*60*capacity1/28.4*60*7.5=15.84 requests1/28.4*60*7.5=15.84 requests1/28.4*60*7.5=15.84 requests

Total request per day14.62513.1511.225

Capacity utilization= total request per day/ total capacity92.38370.8

By Littles Law,the average lead time using the inventory and the average flow rate comes out to be2.1 days(82 policies/ 39 policies per day).

Decreasing Revenues, Increasing ExpensesManzana has steadily declining revenues from renewals, down 6.24% since 1989 and ordinary insured loss expenses have increased 23.5% since 1989. These two factors have combined to make the once profitable Fruitvale branch unprofitable.

High Agent/Team Ratio

The average Manzana branch serves 20 to 25 independent agents per underwriting team. The smallest branch serves 20 agents per team while the largest serves 21.43 agents per team. Fruitvale is currently serving 25.33 agents per team which potentially puts them at risk of becoming overloaded on requests, which leads to increasing TAT.

Sheet1Exhibit 1Manzana Insurance - Fruitvale Branch1989199019914th1st2nd3rd4th1st2ndQuarterQuarterQuarterQuarterQuarterQuarterQuarterGross PremiumsNew policies$1,54618.51%$1,63518.39%$1,68418.94%$1,76320.04%$1,76319.88%$2,02423.81%$2,17224.40%Endorsements961.15%1171.32%1381.55%1341.52%1341.51%1581.86%1331.49%Renewals6,71080.34%7,14080.30%7,06779.50%6,89878.41%6,97178.61%6,31774.33%6,59674.10%$8,352100.00%$8,892100.00%$8,889100.00%$8,797100.00%$8,868100.00%$8,499100.00%$8,901100.00%Commissions85610.25%90910.22%91610.30%92410.50%92910.48%94811.15%1,00511.29%Other Expenses851.02%870.98%991.11%1321.50%961.08%1301.53%1211.36%0.00%Net Underwriting Revenue7,41188.73%7,89688.80%7,87488.58%7,74188.00%7,84388.44%7,42187.32%7,77587.35%Ordinary Insured Losses4,92859.00%5,60263.00%5,77865.00%5,71865.00%6,03068.00%6,15572.42%6,45372.50%Extraordinary Losses0.00.00%0.00.00%0.00.00%0.00.00%6126.90%0.00.00%0.00.00%Less: Branch Protection*0.00.00%0.00.00%0.00.00%0.00.00%4004.51%0.00.00%0.00.00%4,92859.00%5,60263.00%5,77865.00%5,71865.00%6,24270.39%6,15572.42%6,45372.50%Gross Underwriting Results2,48329.73%2,29425.80%2,09623.58%2,02323.00%1,60118.05%1,26614.90%1,32214.85%Operating ExpensesOffice rent330.40%360.40%360.40%360.41%360.41%400.47%400.45%Property and Equipment70.08%80.09%70.08%60.07%10.01%10.01%20.02%Depreciation130.16%150.17%150.17%150.17%150.17%160.19%160.18%Finance charge**40.05%50.06%50.06%50.06%50.06%50.06%50.06%Salaries96111.51%93510.52%93510.52%93510.63%93510.54%1,02812.10%1,02811.55%Plus Program***0.00.00%800.90%830.93%870.99%870.98%901.06%971.09%Branch protection1001.20%1001.12%1001.12%1001.14%1001.13%1001.18%1001.12%Branch allocation****1201.44%1201.35%1201.35%1201.36%1201.35%1501.76%1501.69%Other70.08%50.06%90.10%50.06%70.08%100.12%50.06%1,24514.91%1,30414.66%1,31014.74%1,30914.88%1,30614.73%1,44016.94%1,44316.21%Branch Profit (Loss)$1,23814.82%$99011.13%$7868.84%$7148.12%$2953.33%$(174)-2.05%$(121)-1.36%Exhibit 2Exhibit 3DCUTRPW89%82%76%71%Current Percent Capacity by Department1989199019911st**2nd3rd4th1st2nd3rd4th1st2ndQuarterQuarterQuarterQuarterQuarterQuarterQuarterQuarterQuarterQuarter16%15%17%15%18%20%25%31%42%44%

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