MANZANA INSURANCE CASE ANALYSIS
OPERATIONS MANAGEMENT CASE ANALYSIS
About the firm
Manzana Insurance was founded in Sebastapol, California in 1902. It originally specialized in orchard and farm insurance. In 1906, after the San Francisco Fire, it saw an opportunity and expanded into a number of areas. The main lines of business initially were Commercial property insurance only. Then Manzana dabbled into commercial liability segment which contributed to almost 50% of revenues. But after the liability crisis and its takeover the strategy adopted was a back to basic strategy whereby there was a conscious effort to reduce the revenue contribution from liabilities. This went down to 20% in 1991. During this time frame the competition from other insurance companies especially from Golden Gate, had become intense.
Insurance Industry Segmentation
Manzana s area of specialization
The case deals with the performance of a branch, located at Fruitvale, which has been consistently losing business to its archrival Golden Gate in its territory. By mid-1991, Golden Gate had performed much better than Manzana s Fruitvale branch on every count and this resulted in memo being issued by the senior vicepresident at Manzana. The Fruitvale branch performed badly on various measures like total number of requests for new policies, endorsements, and renewals processed, very high turnaround time resulting in late renewals and increased renewal loss rate.
OPERATIONS MANAGEMENT CASE ANALYSIS Problem Overview
Manzana Insurance - Fruitvale's core management problem is its under-par performance owing to long turnaround times (TAT) and piling up backlogs of request in process (RIP). Also, because of the late Renewals, many of Fruitvale´s customers are turning to its major competitor Golden Gate. There are systemic issues with the process for handling requests that have led to this deterioration, including the incorrect prioritization of requests and the uneven distribution of workload amongst its three underwriting teams. Other problems in the Fruitvale branch include ineffective incentive systems, increase in shift to newer policies, bottlenecks in operation, possible idle capacity in the Rating and Policy Writing teams, etc. These problems have resulted in loss of almost half of renewal business for Manzana-Fruitvale. Addressing these underlying issues is key to Manzana s ability to compete with Golden Gate.
Insurance Sector Performance Metrics
The key parameters that the customers use to differentiate the various offerings in the market are: Turnaround Time: Turnaround time of policy requests and approvals refers to the amount of time it takes on average for a request to be handled from the time of entry to the time of final approval. A low Turnaround Time is preferred by the customers. The average turnaround time of Fruitvale s operations has increased to 6 days, while Golden Gate s is around 2 days. The long lead times on the policies and quotes and the waiting time of the renewals has led to a loss of business, creating the opportunity for the competitor to take up more market share. Renewal rate of Policies: The ease of renewal is also a selling point. A hassle free and quick renewal policy could be leveraged upon to increase the market share. Fruitvale s overemphasis on new policies, based on the idea that new policies would generate higher margins, is causing loss of profitability resulting in loss of almost half of the renewal business every year. For instance, the dispatch for renewals is sent only the day before the expiry. This has serious consequences on the sustainability of the business as the number of renewals directly affects the policies in force, which in turn impacts the revenue stream. Backlog: The backlogs as well as the Late RERUNs have been increasing steadily over...