OPERATIONS MANAGEMENT

Case Analysis:

Manzana Insurance: Fruitvale Branch

Submitted to Prof. Anshuman Tripathy

Section C - Team 12 Sameer Kumar Gupta Saurabh Kumar Supriya S. K. Sehgal Shanmuga Sundaram P Rajesh D Shashank Shekhar (1311195) (1311196) (1311197) (1311198) (1311188) (1311200)

Manzana Insurance: Fruitvale Branch

Introduction
Manzana Insurance Company was founded in 1902 and it grew steadily to become the worlds second largest home and property insurer. It operated through three major autonomous branch offices in California, Oregon and Washington. Each branch operated within a defined territory and was treated as an independent profit and loss centre. Fruitvale was one of its smaller branches. Manzana specialised in commercial insurance with the Fruitvale branch handling four types of underwriting requests viz request for new policy, renewal, policy endorsement and price quotes. However since 1970 the companys performance began deteriorating. It was eventually acquired by Banque du Soliel in 1989 which led to a new management and reorganization. This did not end the companys woes. With the entry of new entrants and stiff competition in the insurance industry, Manzanas FrUItvale branch is facing several issues which need immediate attention. The problems faced by the Fruitvale branch and recommendations to overcome the same will be discussed in the following analysis.

Concerns Faced by Manzanas Fruitvale Branch

Manzanas FRuitvale Branch has reported a degrading performance financially and operationally in the first two quarters of 1991. Declining profits and threat of loss of customers to competitors are its primary concerns. The major concerns faced by the branch and their causes can be summarized as follows: 1) Long Turnaround Time (TAT) Turnaround time is defined as the time between the receipt of a RUN (new policy request) and issuance of the final policy. It is a measure of the companys speed in response to a request. TAT for Manzanas Fruitvale branch has increased from 3 days to ______. This is one of the major concerns facing the company. With intense competition in the insurance industry, this factor became a point of differentiation for a company with a smaller TAT. Manzanas competitor-Golden Gate Insurance had announced achieving a TAT of one working day. If this target is achieved they would have a straight advantage in the eyes of agents. Agents referred policies which had a smaller TAT to consumers which would mean a huge loss of business for Manzana. 2) Intense Competition Golden Gate entered the insurance industry in 1970s and was backed by one the largest retailers in the world as their corporate parent. They succeeded in gaining a considerable market share through intensive market campaigns and price wars. The two insurance companies viz Golden Gate and Manzana have always been at loggerheads fighting it out for the first position. They now pose a new threat to Manzanas Fruitvale Branch by their latest announcement of reducing TAT to one working day and thereby leading to loss of potential customers. Thus this intense competition in the insurance industry is also one of the companys major concerns. 3) Large Backlog of Policies This issue stemmed out of the basic inefficiency in the operating procedures of Manzana s Fruitvale Branch. It followed a modified First in First out (FIFO) procedure to tackle its four types of policies. RUNs and RAPs were given preference over RERUNs and RAINs. This was

done because new policies were considered more profitable as compared to renewals. The direct implication of this was that Manzana now had a huge backlog of renewals to be cleared which seemed impossible with the current modified FIFO in place. 4) Increasing Renewal Loss A huge pile of backlogs in clearing renewals led to increasing renewal losses for Manzanas Fruitvale Branch. The renewal loss rate inceased to 30.79% in the year 1991. Out of 2081 RERUNS, Fruitvale lost 926 renewals losing out on the corresponding revenue. 5) Inefficient Labour Distribution Manzanas Fruitvale Branch has 3 underwriting teams which together serve 76 agents. However the capacity utilization across the 3 branches is uneven. Underwriting Team 3 is underutilised while Team 1 is highly loaded and hence the workload distribution needs correction for Manzanas Fruitvale Branch. 6) Salary Scheme Manzana introduced a new salary scheme called Salary/Plus in 1990 with a view to retaining senior underwriters, being courted by their competitor. However this scheme created new problems. Under this scheme every employee got an annual salary plus an extra incentive payment for each new policy written. This factor could have contributed to new policies being favoured over renewals leading to backlogs and renewal losses. This issue hence required looking into.

Capacity Utilization
Currently, Manzana uses 95th percentile of SCT for turnaround time and capacity calculation. It is a very conservative measure and may not be representative of the actual time taken on an average for processing the requests. To prove this, the capacity utilization for the complete cycle of process is calculated by using the 95th percentile of SCT as the time taken by each functional unit (such as Distribution, Underwriting, etc.) for completing a request and found to be 124.2% (Appendix-1). Mean time taken for processing the request could be an alternative measure (as it makes more sense intuitively) and when that is used for calculating the capacity utilization, it turns out to be 74.75% (Appendix-2). To check whether each individual functional unit is being either over or under-utilized we can use the WAT (weighted average time taken by each unit in processing a request). It is evident from the capacity utilizations of each unit (Appendix-3), that there is no bottleneck in the whole process, as none of them has a utilization of more than 100%. It can also be observed that the utilization level across the units is not uniform which gives room for possible idle time for few employees. UT1 is loaded to the maximum extent (97%), while UT3 team is underutilized, being loaded only 70%. Further, the Policy Writing (PW) team is utilized only 64% of its available labour time. TAT calculations: For calculating the TAT, we should consider the mean time, since 95% SCT will account for so much of leeway, while the intent is to reduce the service time. The time considered to clear out the pending processes is estimated based on the mean time for each process: Distribution 570 minutes / (4 Dc * 7.5 * 60 minutes ) = 0.3 day

Underwriting 0.89 day to clear the existing inventory and 0.59 day to clear the inventory from DC There is no wait time for the underwriters Rating 1.6 days totally The rating clerks need not wait for the inputs from the previous operations. Rating inventory - 0.2 From Underwriting 1.1 From distribution 0.3 Policy writing If the entire process is available at the policy writing desk, then there is no waiting time. However, there are cases when the clerks are waiting for the input from the previous rating desk. Hence, there is a delay. We calculate the service time, assuming that there is an incoming batch here from 3 sets of sources 1. 2. 3. 4. Inventory 0.1 + waiting time 0.1 Rating inventory 0.2 + 0.9 waiting Underwriting inventory 1.0 Distribution inventory 0.3

So, the total time taken to process the 82 existing processes is 2.6 days. We will get intermittent output at various timeframes because of balancing. Also, it takes on an average 70 more minutes to pass a new incoming RUN while 54 more minutes to process a new RAIN and 50.1 more minutes for rerun. For a RAP, since it does not involve the policy writing stage, a new RAP can be done in 1.6 days and 64.7 minutes.

Recommendations:
The recommendations are: 1. Pooling of the Underwriting Teams so as to distribute the workload more evenly across the three teams. Appendix 3 shows the calculations in detail 2. Redistribution of the workforce to 3. The calculations in Appendix-10 show

APPENDICES
Appendix-1
Request DIST Type (m/r) RUN RAP RAIN RERUN 128.1 107.8 68.1 43.2

UW (m/r)
107.2 87.5 49.4 62.8

R (m/r)
112.3 88.7 89.4 92.2

PW (m/r)
89.3 0 72.1 67

Total (m/r)
436.9 284 279 265.2

No of Total reqs. time (m)

350 1798 451 2081 152915 510632 125829 551881.2

Available Capacity Time (m) Utilization (%) 1080000 124.19

Capacity Utilization (%) = (1341257.2/1080000)*100 = 124.19% Appendix-2

Request DIST Type (m/r) RUN RAP RAIN RERUN 68.5 50 43.5 28

UW (m/r)
43.6 38 22.6 18.7

R (m/r)
75.5 64.7 65.5 75.5

PW (m/r)
71 0 54 50.1

Total (m/r)
258.6 152.7 185.6 172.3

No of reqs.
350 1798 451 2081

Total time (m)

68.5 50 43.5 28

Available Capacity Time (m) Utilization (%) 1080000 74.75

Capacity Utilization (%) = (807326.5/1080000)*100 = 74.75% Appendix-3

Distribution Clerks Process Mean times Quantity (per day, all workers) Total Time Required (per day, all workers) Weighted Average Time (all distribution activities) Available Time (labour minutes per day) %age Utilization of labour time Underwriting Team 1 Workforce Mean times Underwriting Quantity Total Time Required Weighted Average Time Available Time (labour minutes per day) %age Utilization of labour time Underwriting Team 2 4.00 RUNs 68.50 2.92 199.79 40.97 1800.00 89%

RAPs 50.00 14.98 749.17

RAINs 43.50 3.76 163.49

RERUNs 28.00 17.34 485.57

Total 39.00 1598.01

1 team RUNs 43.60 1.35 58.86 29.80 450.00 97%

RAPs 38.00 6.34 240.98

RAINs 22.60 1.63 36.91

RERUNs 18.70 5.30 99.11

Total 122.90 14.63 435.87

Workforce Mean times Underwriting Quantity Total Time Required Weighted Average Time Available Time (labour minutes per day) %age Utilization of labour time Underwriting Team 3 Workforce Mean times Underwriting Quantity Total Time Required Weighted Average Time Available Time (labour minutes per day) %age Utilization of labour time Underwriting (Pooled Teams) Workforce Process Mean times Quantity Total Time Required Weighted Average Time Available Time (labour minutes per day) %age Utilization of labour time Rating Clerks Process Mean times Quantity Total Time Required Weighted Average Time Available Time (labour minutes per day) %age Utilization of labour time Policy Writing Writers Process

1.00 RUNs 43.60 0.83 36.33 26.86 450.00 78%

RAPs 38.00 4.28 162.45

RAINs 22.60 1.04 23.54

RERUNs 18.70 7.00 130.90

Total 122.90 13.15 353.23

1.00 RUNs 43.60 0.73 31.97 28.21 450.00 70%

RAPs 38.00 4.37 165.93

RAINs 22.60 1.08 24.48

RERUNs 18.70 5.04 94.28

Total 122.90 11.23 316.67

3 teams RUNs 43.60 2.92 127.17 28.35 1350.00 82%

RAPs 38.00 14.98 569.37

RAINs 22.60 3.76 84.94

RERUNs 18.70 17.34 324.29

Total 122.90 39.00 1105.76

8.00 RUNs 75.50 2.92 220.21 70.39 3600.00 76%

RAPs 64.70 14.98 969.42

RAINs 65.50 3.76 246.17

RERUNs 75.50 17.34 1309.30

Total 281.20 39.00 2745.10

5.00 RUNs (including those or.

RAPs

RAINs

RERUNs

Total

Mean times Quantity Total Time Required Weighted Average Time Available Time (labour minutes per day) %age Utilization of labour time

as RAPs) 71.00 5.20 369.20 54.79 2250.00 64%

0.00 0.00 0.00

54.00 3.76 202.95

50.10 17.34 868.82

175.10 26.30 1440.97

Appendix-4
Revenue calculations (per unit labour time) RUNs originating as RUNs originating as Process RERUNs RUNs RAPs Amount Head ($) Amount($) Amount($) Total Net Income Earned 12009090 1765144 1381856 Total Renewals processed 2081 350 274 Average Revenue per renewal 5770.827 5043.269 5043.269 Labour Time Spent per renewal 191 302.2 1073.024 Average Revenue per renewal per unit time 30.21375 16.68851 4.700052

RAINS Amount($) 291000 451 645.2328 185.6 3.47647

Appendix-5
Mean times Distribution Underwriting Rating Policy Writing Mean Policy Processing Times by Departments RUNs RAPs RAINs 68.5 50 43.5 43.6 38 22.6 75.5 64.7 65.5 71 0 54 RERUNs 28 18.7 75.5 50.1

Appendix-6
6 months consolidated data for various processes 1991 data (6 Process months) RUNS Policies Processed (RUNS originating as RUNS) 350 Policies Processed (RUNS or. As RAPS) 274 Total RUNS processed 624 Late 0 RAPS (Total, including RAPs completed as RUNs) Requests Processed 1798 Late 0 RAINS (Total, including RAPs completed as RUNs) Per day values 2.92 2.28 5.20 0.00 14.98 0.00

Requests Processed Late RERUNS Requests Processed Late Total Requests Processed Late Renewals-number lost

451 3 2081 893 4680 896 926

3.76 0.03 17.34 7.44 39.00 7.47 7.72

Appendix-7
Revenues New policies Endorsements Renewals Total Revenue from different processes Total Total Comm. Total Net Income 4196 1049 3147 291 0 291 12913 903.91 12009.09 17400 1952.91 15447.09

Appendix-8
Revenue calculations (per unit labour time) RUNs originating as RERUNs RUNs RUNs originating as RAPs Amount ($) Amount($) Amount($) 12009090 2081 1765144 350 1381856 274

Process Head Total Net Income Earned Total Renewals processed Average Revenue per renewal Labour Time Spent per renewal Average Revenue per renewal per unit time

RAINS Amount($) 291000 451

5770.827

5043.269

5043.269

645.2328

191

302.2

1073.024

185.6

30.21375

16.68851

4.700052

3.47647