Manzana Insurance Fruitvale Branch

Manzana’s Position in the Insurance Industry

Manzana has a history of seeing opportunity and seizing it. Manzana has grown through acquisition. Manzana's main competition is Golden Gate Casualty. They beat Manzana on both price and performance. Golden Gate tied with Manzana for first place in the property insurance market in 1988. By 1991, Golden Gate announced they could guarantee turnaround time (TAT) of one day. If they fail to reach that benchmark, they offer a 10% premium discount. Manzana must at least match that promise to stay competitive in this market.

The current TAT for request processing has bloated to five or more days at a time. This report will recommend a number of strategies to improve the system in operational efficiencies, measurement and service. Manzana has an opportunity to increase their business through decreasing their TAT, adjusting staff incentives and delighting their customers.

The acquisition of Manzana by Banque du Soleil has helped. There was a restructure that resulted in a leaner company. Underwriting standards have tightened, operating expense has reduced and this has resulted in a regain of market share. After the restructure, they are now better geared toward the property liability insurance market. Manzana now specialise in commercial insurance rather than personal insurance. That has pitted them against Golden Gate. For commercial insurance, the revenue breakdown of Manzana is:

Figure 1: Manzana revenue by product category

As illustrated in fig. 1, liability insurance is only 20% of Manzana's revenue. The liability insurance crisis of the 1980s saw huge payouts to customers. That meant reduced profitability and a low proportion of resources allocated. The Fruitvale branch of Manzana increased the proportion of resources working on property insurance. This was to avoid taking on the high risk of ​payouts that would threaten the branch's profitability and meant it could stay open.

Analysis of Manzana

In order to take on the challenge that Golden Gate has thrown down, Manzana must analyse their systems and performance. We will make some recommendations based on an analysis of Manzana’s

• Key Performance Indicators – measurement and incentives
• Cost structure
• Bottlenecks

Assumptions

This analysis includes these key assumptions:

1. The exit time from the processing of a previous step becomes the arrival time of the next step, e.g. CVp (Distribution) = CVa (Underwriting)

[pic 1]

1. The arrival variability at the entry is nil: Arrival of policies to the distribution appears to be perfectly random with no discernible patterns of peaking
2. To complete this analysis we have taken the mean and standard deviation from the Policy Processing Times by Department in 1986
3. See Figure 2 and 3 for assumptions based on Manzana’s performance

Figure 2, assumptions used in time-based calculations

Figure 3, assumptions used in resource-based calculations

Key Performance Indicators (KPIs)

The KPIs for Manzana Fruitvale branch are benchmarked against targets for the current quarter, the current quarter vs. the previous year and the current quarter for Golden Gate. They are:

• Number of new policies
• Number of endorsements
• Number of renewals
• TAT (days)
• Renewals late (%)
• Renewals loss rate (%)

Management signal to staff what is important to them. At present, it is: TAT, the percentage of late renewals and the percentage of renewals lost. The announcement by Golden Gate of the one-day TAT and 10% discount if it is not met has increased the pressure on these KPIs.

The targets for Manzana's Fruitvale branch were not provided. Performance relative to Golden Gate is substandard, as shown below in Figure 4 for the current quarter:

Figure 4. Performance of Manzana relative to Golden Gate

The absence of late renewals by Golden Gate is telling – that represents a yawning gap to Manzana's 44%. It's a clear indicator as to why Manzana loses close to half of the renewals segment of its business every year. These losses may also be attributed to the incentive of staff to work on new policies rather than renewals. The workflow is not optimised, with staff working in silos rather than pooling resources. These issues are reflected in Manzana’s profit and loss statement.