Operation Management | Case Analysis of Manzana Insurance | Group VI

Operations Management
Case Analysis of
Manzana Insurance: Fruitvale
Branch

Submitted to:
Prof. Sanjay Choudhari

Submitted by: Group VI

2018EPGP007 | Anupam Ghosh
2018EPGP015 | Garvit Bhargava
2018EPGP030 | Neel Chauhan
2018EPGP036 | Prakash C Nayak
2018EPGP041 | Rahul V
2018EPGP056 | Shikha Das

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Operation Management | Case Analysis of Manzana Insurance | Group VI

PERFORMANCE OF MANZANA INSURANCE

Manzana Insurance - Fruitvale branch is not performing well in most aspects.

● High turnaround time

● Year on year reduction on renewals
● Increase in Renewal loss rate
● Increase in late renewal

These performance issues resulted opportunity for a competitor (Golden Gate) to capture the
market share. This results in declining branch profitability and stagnating of new policies and
endorsements.

High Turnaround time (TAT) - The total time taken to process a request. This is the most critical
concern for the branch. Currently Fruitvale branch’s Turnaround time is around 6 days compare to 2
days of its major competitor Golden gate, Which also targeting for 1 day TAT. The company operates in
Operational inefficiency with inappropriate distribution of workforce as well as work distribution over
time making overall system inefficient. We can correlate more data from detailed process flow analysis.
Significant rise in late renewal - Policies those are completed after their due date. This is
primarily because the computer generated RERUN Policies (policies that are required to be renewed)
are released to the DCs only at the last day before their due date which results in loss of business.
Unclear prioritization strategy - Clearly various department of the branch have different
priorities, this is also contributing for inefficiency. Officially the company policy is to use FIFO (First in
First out) system however as the case fact suggest this rule is not followed. In practice new policy
request is given priority over others. The compensation policy of Manzana is also support new policy by
commissioning 25% to agents.

The combination of these operational inefficiency has resulted in bad performance of Fruitvale
branch. Addition to this Manzana’s strategic focus towards autonomy across branches has also
contributed for inefficiency.

Process analysis for Manzana Insurance - Fruitvale branch

Every request, be it RUN, RAIN or RAP, start with the distribution clerk distributing the request
for the policy received from an agent (also the Originating Agent for a new policy) or computer
generated for cases of RERUN to a Underwriting Team (Team 1, 2 or 3). Distribution also analyses and
disseminated published data, researches rates of competition and oversees rating. The Underwriting
team (UT) evaluates and prices the request and then it passes on to the rating department (RT). RT
further calculates premium on case to case basis. The policy writing (PW) departments do the task of
actually typing the policy and distribution of the completed policies. In case of RAP, the numbers
generated in the quotes are transferred to the originating agent from the RT and once accepted, go
straight to the policy writers.

As per the case, the total number of requests received by Fruitvale is 39 requests per day.

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Operation Management | Case Analysis of Manzana Insurance | Group VI

Therefore, the number of requests received by each Underwriting Team:

Team 1: Total Number of requests across various categories for 6 months in 1991 as obtained from
Exhibit 7 / (20 days per month * 6 months)
= (RUNs + # RAPs + # RAINs + # RERUNs) / (20*6)
= (162 + 761 + 196 + 636) / 120
= 14.63 requests per day

Team 2: (100+513+125+840)/120 = 13.15 requests per day

Team 3: (88+524+130+605)/120 = 11.22 requests per day

Also it is stated that 15% of the RAPs that are received are converted to RUNs.
Since, the number of policies received per day (as per Ex 7) = (761+513+524)/120 = 15 RAP outgoing
requests per day
Therefore, the number of RAPs that translate to RUNs = 15% of 15 = 2.25 policies
Since the number of output is 39, of which 15 are RAPs, therefore the actual number of requests that
the PW department receive is,
= (39-15) + 15% of 15
= 24 + 2.25
= 26.25 requests per day

The organization structure has assigned each UT to a geographical territory, viz. Territory 1, 2 and 3. The
utilization for each territory is given below:

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Operation Management | Case Analysis of Manzana Insurance | Group VI

Capacity Utilization of each Department:

Distribution Underwriting Rating Policy Writing

Average daily request 39 39 39 26.25
Weighted average
41 min/request 28.4 min/request 70.4 min/request 54.8 min/request
processing time
60/41* 7.5 60/28.4* 7.5 60/70.4* 7.5 60/54.8* 7.5
Capacity available days*4 days*3 members days*8 members days*5 members
members =43.9 =47.54 =51.14 =43.9
Capacity utilization per
88.84% 82.04% 76.26% 63.93%
day

It is given that 39 requests (on an average) are handled by Fruitvale. Each department, as per Ex 4, takes
41, 28.4, 70.4 and 54.8 minutes (weighted average) to complete its task per request. We have
subsequently calculated the capacity that is available while utilizing the number of employees available
per department, working 7.5 hours a day. The max utilization is for Distribution and Underwriting.

Analysis by processing time

Considering 95% SCT for processing time Cycle time

Operating RUN RAPs RAIN RERUN No of RUNs RAPs RAINs RERUNs
steps s s s Employees
128. 107.
Distribution 1 8 68.1 43.2 4 32.03 26.95 17.03 10.80
107.
Underwriting 2 87.5 49.4 62.8 3 35.73 29.17 16.47 20.93
112.
Rating 3 88.7 89.4 92.2 8 14.04 11.09 11.18 11.53
Policy writing 89.3 NA 72.1 67 5 17.86 14.42 13.40

Considering average time for processing Cycle time

Operating RUN RAPs RAIN RERUN No of RUNs RAPs RAINs RERUNs
steps s s s Employees
68.5 50.0
Distribution 0 0 43.50 28.00 4 17.13 12.50 10.88 7.00
43.6 38.0
Underwriting 0 0 22.60 18.70 3 14.53 12.67 7.53 6.23
75.5 64.7
Rating 0 0 65.50 75.50 8 9.44 8.09 8.19 9.44
71.0
Policy writing 0 NA 54.00 50.10 5 14.20 10.80 10.02

Highlighted cells implies bottleneck for that particular policy.

If we consider 95% SCT for processing time, the capacity utilization for is more than 120% which
is quite not possible. This implies that considering 95% SCT is overstating the fact. Also to note the

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Operation Management | Case Analysis of Manzana Insurance | Group VI

bottleneck is changing for using 95%SCT and average mean time for processing. Considering 95% SCT,
the bottleneck for RUN, RAP, RERUN is underwriting. If we consider mean processing time, bottle neck
of RUN and RAIN is distribution. High lightened cell in the above table explains the differences.

Analyzing Underwriting bottleneck

Under writing team Territory 1 Territory 2 Territory 3

Average daily request 14.63 13.15 11.23
Weighted average
28.4 min/req 28.4 min/req 28.4 min/req
processing time
60/28.5* 7.5 60/28.5* 7.5 60/28.5* 7.5
Capacity available
days=15.8 days=15.8 days=15.8
Capacity utilization per day 92.59% 83.23% 71.08%

In the table above, we have calculated the capacity utilization per day for each Territory
handled by the Underwriting Team. We have calculated that each Team of UT will take approximately
14.63, 13.15 and 11.23 requests per day. We know that the weighted average time for UT is 28.4
minutes (given). Therefore, the capacity available is calculated and subsequently the utilization is
calculated as mentioned in the table. The underwriting teams have different workloads but the firm
practices assigning agents to a particular underwriting team. Given the working day capcity of 7.5 hours
per day, Capacity utilization is 92.3% for Territory 1, 83% for Territory 2 and 70.8% for Territory 3.
Clearly, all teams are underutilized with substantial gaps in utilization.

Possible solution: Clubbing all under writing team (ie. Underwriting teams should not be divided based
on territory and allocation should be distributed properly)

RUNs RAPs RAINs RERUN Total

Territory (All combined) 350 1798 451 2081 4680
Mean Processing time of the team 43.6 38 22.6 18.7
Mean Processing time (Mins) 14.53 12.67 7.53 6.23
Total Time (Mins) 5086.67 22774.67 3397.53 12971.57 44230.43
Weighted Average Process Time per request 9.47
Total Requests per day 39
Average Time utilized per day 369.2
Capacity Utilization (total of 450 mins) 82.04%

If all teams are brought together, the capacity utilization will be optimal around 82%.

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Operation Management | Case Analysis of Manzana Insurance | Group VI

FINANCIAL PERFORMANCE OF MANZANA INSURANCE

1. REVENUE

Revenue growth of Manzana Insurance in 1990 was 7.38% compared to 1989, however in 1991 the
revenue growth is declining and in the first two quarters revenue got reduced by -2.14% compared to
corresponding first two quarters of 1990. Below table explains the quarter on quarter growth data for
the given period.

1989 1990 1991

Change in 1st 2nd 3rd 4th 2nd 3rd 4th 1st 2nd
1st
Revenue Quarte Quarte Quarte Quarte Quarte Quarte Quarte Quarte Quarte
Quarter
r r r r r r r r r
Wrt.
previous 0.37% 0.40% 1.22% 6.47% -0.03% -1.03% 0.81% -4.16% 4.73%
quarter
Wrt. same
quarter of
8.60% 8.17% 6.62% 6.18% -4.42% 0.13%
previous
year

Segment wise analysis

Revenue Contribution by Type of Policies

Type of Policies 1989 1990 1991 Trend
New policies 18.46% 19.31% 24.11% Increasing
Endorsements 1.25% 1.48% 1.67% Marginal Increase
Renewals 80.28% 79.21% 74.21% Decreasing

The above table suggest that new policies contribution to the overall revenue got increased
from 18.46% in 1989 to 24.11% in 1991, meanwhile renewals contribution to revenue got decreased
significantly from 80.24% in 1989 to 74.21% in 1991.

2. EXPENSE
Ordinary Insured losses, the major expense to the Manzana Insurance, is an exogenous variable.
Other major contributors are operating expense and commission expense; all are increasing. Below the
table explaining the distribution of expense as a percentage of revenue.

Expense as a percentage of revenue

Headings 1989 1990 1991 Trend
Commissions 10.23% 10.38% 11.22% Increasing
Other Expenses 0.95% 1.17% 1.44% Increasing
Ordinary Insured Losses 53.27% 65.25% 72.46% Increasing
Extraordinary Losses 0.33% 0.60% 0.00% Neutral
Operating Expense 15.05% 14.75% 16.57% Increasing
Branch Profit (Loss) 20.16% 7.86% -1.70% Decreasing

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Operation Management | Case Analysis of Manzana Insurance | Group VI

3. PROFIT Analysis

It is very evident since revenue is decreasing and expense is increasing, bottom line is in trouble.
There is one more fact that need to be looked. The case suggests, Manzana insurance employees
perceive that new policies are more profitable, however if we calculate the revenue after subtracting
commission, net revenue of renewal policy is high compared to new policies (refer data below)

Average
revenue ($ Commission to Net revenue
Type of Policies ’000) agents ($ ’000) ($ ’000)
New policies 6724 1681 5043
Endorsements 645 NA NA
Renewals 6205 434.35 5770.65

Also to note that, employees of Manzana insurance are getting $ 150 per new policy, this will
add to the cost of the policy, hence renewal policy generate $ 877.65 ($5770.65 – $5043 - $150) more
than the new policy. Moreover processing time for renewal policy is 34% lesser than new policy. This
implies that the employee cost per renewal policy is lesser than new policy. Overall renewal policy is
much more profitable than new policy and the company incentive needs to be changed accordingly.

MANAGERIAL RECOMMENDATIONS
Currently Manzana insurance – Fruitvale branch should complete its backlogs at the earliest possible
time. The same may be expedited by overtime (and/or contact employers) to clear the backlog.
After removing backlog, following are recommended for short term (Immediately)
1. In the current inflow of 40, slightly shuffling the workforce will help in reducing the higher
capacity utilization of distribution (considering more than 80% in service industry is not
desirable). We suggest to move one employee from policy writing to distribution for short term

Distribution Underwriting Rating Policy writing

Average daily request 39 39 39 26.25
Weighted average processing time 41 min/req 28.4 min/req 70.4 min/req 54.8 min/req
No of members 4 3 8 5
New realignment 5 3 8 4
60/28.4* 7.5 60/54.8* 7.5
60/41* 7.5 60/70.4* 7.5
days*3 days*5
Capacity available days*4 members days*8
members members
=43.9 members =51.14
=47.54 =43.9
Capacity utilization per day 88.84% 82.04% 76.26% 63.93%
New capacity utilization (based on
new realignment) 71.07% 82.04% 76.27% 79.92%

For long term, Manzana should consider adding more employees and improve the daily
handling capacity to 50 daily request per day with utilization of 70 to 80%

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Operation Management | Case Analysis of Manzana Insurance | Group VI

2. Reprioritization of RERUNS or follow FIFO

Loss in Reruns is primarily due to late processing whereby the distribution clerks are given
RERUN only a day prior to the date of the renewal even though RERUN is generated 30 days prior to the
date of renewal. The RERUNS should be given to Distribution Clerks 3 days prior to the date of renewal
to avoid the loss of 47% RERUNS which is affecting the revenue and profit for the MANZANA Insurance.
Following FIFO also will reduce the problem to a greater extent

3. Change in the Incentive Structure for RUN

New Policy above the established quota for underwriters is incentivized resulting in
concentration on RUN’s rather than RERUNs. However, both revenue and profitability got affected due
to loss in the renewal policies. Hence there is a need to incentivize timely renewals or penalizing in case
of non-renewals.

4. Problems with the current measurement system for TAT : For process calculation, we need to
take average processing time instead of 95%SCTs.

5. Polling of underwriting teams – not segregating with respect to territories:

Responding to Golden Gate

The above short term recommendation will allow Manzana Insurance to compete with Golden
gate by proposing 2 day TAT, however in order to sustain and improve the TAT considering the growth
expectations, below long term recommendation to be looked upon

For Long term

1. Increasing capacity by increasing no of employers- ie increasing ability to handle 50 daily request within 70 to
80% capacity utilization

Distribution Underwriting Rating Policy writing

Average daily request 50 50 50 35
Weighted average processing time 41 min/req 28.4 min/req 70.4 min/req 54.8 min/req
No of members (including additional) 6 4 10 6
60/41* 7.5 60/28.4* 7.5 60/54.8* 7.5
60/70.4* 7.5
days*4 days*3 days*5
Capacity available days*8
members members members
members =51.14
=43.9 =47.54 =43.9
Capacity utilization per day 75.93% 78.89% 78.22% 71.04%

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Operation Management | Case Analysis of Manzana Insurance | Group VI

2. Automation of Rating and Policy Writing Stages

A further area that could be improved to reduction in turnaround time is the rating and policy
writing stages. The Fruitvale branch spends 2/3 of the processing time on these two stages, suggesting
they have not capitalized on technological developments. Automation of these areas can free up the
staff which may be redistributed to Underwriting to increase the capacity.

The CHALLENGES FACED BY MANZANA VS. EXECUTIVE SHIRT COMPANY are typical as challenges
faced by manufacturing industry vs. service industry and are as follows:

Manzana Insurance Executive shirt company

Capacity utilization: Capacity utilization is 89%.
For service industry capacity utilization cannot
reach 100%.
Process analysis: operating activities follow a
defined process and cannot be changed.
Inventory cannot be stored in service industry
prior to order. Input in service industry is varied
and cannot be predicted before. Daily activity of
40 requests can vary considerably. Hence output
per day can vary for Manzana Insurance.
Here introducing a separate work flow for one
product will reduce the capacity utilization to a
greater extent. Also the order can be highly
fluctuating within a day, reducing capacity
further
Capacity utilization was 83.33% for regular shirts
and 93.75% for producing regular shirts along
with executive shirts. Capacity utilization can
reach 100% for manufacturing company.
Shirts are manufactures in batches. Production
can be increased by installing a new line.
Inventory can be stored as WIP and planned
accordingly for executive shirt company as per
production needs. Output can be made
consistent as per shirt requirement.
In Executive shirts we have introduced the
separate line for custom shirts.

This shows that operation management principle used in manufacturing lines are applied in
service industry. However certain parameters like capacity utilization and inventory management is
unique.