Mazana Case Study

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TO: FROM: RE: DATE: John Lombard OM725 Consultants Manzana-Fruitvale Branch Capacity Analysis September 5, 1991 Recommendation We recommend that underwriting teams handle RUNs, RAPS and RAINs as soon as they are requested and work on RERUNs when there are no other requests waiting. Release RERUNs 30 days in advance to assure that they are completed on time. Eliminate the backlog using overtime and pool underwriters to better handle variation in demand across territories. With this, we can achieve a one-day turnaround time. Issue Manzana’s commercial insurance is a product for which low price is important in order to compete, but serving customers (agents) is what produces loyalty. Agents want rapid request turnaround so that they, in turn, can impress their customers. The agents will also receive their commissions more quickly. Fruitvale’s performance has deteriorated, as has its competitive position. Average turnaround time (TAT) has grown from about three days in 1989 to more than five days in 1991 while its main competitor, Golden Gate, has achieved two-day TATs and is now promising one day. As a percent of revenues, branch profits in 1989 were 20.2%; in 1991, the branch suffered a 1.7% loss (Exhibit 1). Analysis There are five fundamental problems with the current process: 1. The relative value of new policies and renewals is not clear to the underwriting teams. While new policies are important for Fruitvale’s long-run viability, they are more risky (Exhibit 1) and require more labor to process (Exhibit 2a). Contribution per RERUN is higher than per RUN. Incentives to underwriters for writing new policies may be contributing to the misperception of the greater value of new policies (Exhibit 2b). 2. Renewals are released the day before the anniversary date, requiring staff to respond as though they were unpredictable, rather than known for an entire year.

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