Manzana Insurance Case - In this study we will look at the major issues Manzana is facing, analyse the causes behind the same and suggest feasible solutions and recommendations to improve its turnaround time.

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INTRODUCTION

Manzana Insurance, the second largest property insurance company in the country, is currently facing stiff competition from its arch rival Golden Gate Insurance. Over the last few years Manzana Insurance has been facing several operational issues which have led to a substantial decrease in the number of policy renewals. In addition, Golden Gate has come up with aggressive strategies and Manzana faces the possibility of losing its existing policy holders to Golden Gate. In this study we will look at the major issues Manzana is facing, analyse the causes behind the same and suggest feasible solutions and recommendations to improve its turnaround time.

CURRENT ISSUES

  1. Loss of business due to higher turnaround time (TAT) than its major competitor. The turnaround time has been increasing steadily quarter after quarter from 4.7 days in 1st quarter of 1989 to 6.2 days in the 2nd quarter of 1991.

  1. Profitability dropping down each quarter. In fact, the last two quarters saw cumulative loss of nearly three hundred thousand dollars.

  1. The loss in number of renewals (RERUN) has increased from 193 in 1st quarter of 1989 to 497 in 2nd quarter of 1991. This is because of the rising delay in processing renewal requests (nearly 44% late RERUNs in last quarter).

Many of these issues arise can be traced back to the following operational practices:

  1. Uneven utilization of resources in underwriting: Each underwriting team is restricted to handling insurance cases from agents of only its assigned territory.  This results in uneven workload and under-utilization of the UT teams which do not have requests from their assigned territory on a given day.

  1. Flaw in operating procedure: Policy writers do not strictly follow FIFO. They usually try to handle the simple jobs first leading to increase in turnaround time.

  1. Prioritization problems: Though RERUNs are the most in backlog queue, the priority order followed is in the order RUN, RAP, RAIN and RERUN. This order has been informally followed at Manzana because of the belief that new policies generate more profits than policy renewals. However, a more detailed study reveals that this assumption is questionable.

  1. Conversion rate of RAPs: Another major issue is the low conversion rate of RAPs (15%). A significant amount of time is invested in ‘developing’ RAPs. However, 85% of these are finally not accepted.

  1. Delay in RERUNs: RERUNs are not worked on until the last day before the due date. This leads to delay in RERUN and since the independent agents represent other competing insurers too, there is a high chance they will advise the customer to move to a competing firm like Golden Gate.

  1. Increasing operating costs:  Under the current system, we notice that there is excess manpower in Rating and Policy Writing departments. Also Manzana’s attempt to reduce attrition by paying higher salaries to managers and underwriters has increased its cash outflow considerably.

Analysis of the current system

Turn Around Time (TAT) for the Existing System:

We have recalculated the turnaround time using the mean time required for processing a task (instead of using 95% SCT per request). Further details and calculations are provided in Exhibit 1 - Turnaround time calculation for existing system. Each of the processes RUN, RAP, RAIN and RERUN are processed using a First In, First Out method with priority given in the order RUN, RAP, RAIN and RERUN.

Therefore, the backlog queue is also treated as a priority queue with the priority as mentioned before. Whenever, there is no task or job to be processed, the Server (clerk or employee) waits or remains idle till the Job becomes available.

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According to our analysis, using the Gantt chart for the existing process, the turnaround time for the existing system turns out to be, 836.2 minutes, i.e. 1.86 days.

Job Flow and Capacity Utilization

From the analysis of the current system, we notice that the distribution and underwriting departments are being efficiently utilized (88% and 82% respectively). However, the capacity utilization of rating and writing departments is only 76% and 64% respectively. The fact that in spite of under-utilization of resources, Manzana still has a high turnaround time suggests that the prioritizing strategy used is flawed and has to be ...

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