Manzana Insurance

Harvard Business School 9-692-015 Rev. January 30, 1997 Manzana Insurance - Fruitvale Branch (Abridged) It was a Monday morning in early September 1991. Bill Pippin had been at Manzana for only a week, but already he was thinking that perhaps he should have taken a different job. He gazed at a note on his desk from John Lombard, his boss at the Fruitvale branch: "I'm giving a speech at a conference on property insurance, so I'll be out of the office until next week. Please give this some thought while I'm gone." The note was attached to a memo from Tom Jacobs, Manzana's senior vice president for underwriting operations: To: John Lombard From: Tom Jacobs Subject: Second Quarter Performance The performance figures on Property Insurance for the second quarter have just been completed, and Fruitvale is at the bottom of the list again. More important, Golden Gate is killing us in your territory, and they have just announced a promise of one-day turnaround time to all agents. If something isn't done immediately to improve your operating performance, a lot of our agents are going to defect to Golden Gate, and some of us are going to need new jobs. Here are some of the numbers: Manzana-Fruitvale Golden Gate This Quarter This Quarter This Quarter This Year Last Year (estimated) New policies 326 278 375 Endorsements 206 235 300 Renewals 1,063 1,253 1,400 Turnaround time (average) 6 days 5 days 2 days Renewals late 44% 20% NA Renewal loss rate 47% 33% 15% Something has got to be done about this. We're getting lots of complaints from agents about your turnaround time, your percentage late figure is unacceptable, and we can't afford to lose almost half of our renewal business every year. John, ever since we eliminated an underwriting team in 1990, you've been saying that you need more underwriters. But when we look at the volume of Christopher Loch and David Paul Grant prepared the original version of this case (S-DS-87, Revised 5/90) under the direction of Professor Michael J. Harrison, Stanford University. It is based on an earlier case by Karlyn Carnahan. Professor Steven C. Wheelwright, Harvard University, prepared the abridged case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 1991 by the President and Fellows of Harvard College and by the Board of Trustees of the Leland Stanford Junior University. To order copies or request permission to reproduce materials, call 1-800-545-7685 or write Harvard Business School Publishing, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any meansÑelectronic, mechanical, photocopying, recording, or otherwiseÑwithout the permission of Harvard Business School. - 71 -  Manzana Insurance - Fruitvale Branch (Abridged) business you are handling, it looks as though there's more than enough people in your operations. Fruitvale handles only property underwriting, and your branch typically receives about 22 requests for new insurance, endorsements, or price quotes a day, and handles another 17 or so renewalsÑlet's call it 40 total requests per day. Based on average processing times for each major task, Fruitvale should be able to handle that easily. My rough calculations are as follows: Operating Activities Review and Distribution Underwriting Rating Policy Writing Daily Activity 40 requests 40 requests 40 requests 40 requests Average Time Required 40 min. each 40 requests = 26.7 hours 30 min. each 40 requests = 20 hours 70 min. each 40 requests = 46.7 hours 55 min. each 30 requests (75% of daily requests) =27.5 hours Capacity Available 4 clerks 7.5 hrs/day = 30 hours 3 teams 7.5 hrs/day = 22.5 hours 8 raters 7.5 hrs/day = 60 hours 5 writers 7.5 hrs/day = 37.5 hours Frankly, I don't see where the problem is. If anything, it looks as if you might be overstaffed in rating and policy writing. In addition, I hear that a staff memberÕs workload is quite uneven over time: one day an underwriter might be stretched to the limit; a week later he may be idle. Whatever the problem is, we need a solution fast. I'll expect a memo with concrete suggestions on my desk in two weeks. When Bill Pippin was in business school, he had become interested in applying production management techniques to service industries. He had interviewed with a number of financial service companies, including Manzana Insurance and Golden Gate Casualty, California's two largest property-liability insurers. Ultimately, Pippin decided to join Manzana as assistant manager of the Fruitvale branch. (See Exhibit 1 for an organization chart.) After reading Tom Jacobs's memo, he paused for a few minutes' reflection and then decided to ask some questions about the scheduling of work flow at the Fruitvale branch. Company Background Manzana Insurance, founded in Sebastopol, California, in 1902, originally specialized in orchard and farm insurance. Following the San Francisco earthquake and fire of 1906, however, the company saw an opportunity to expand its business throughout northern California by buying several insurers that had been driven to near bankruptcy by the catastrophe. In 1944, anticipating the end of World War II and foreseeing a boom in home ownership in southern California, the company purchased the Santa Ana Underwriting, Casualty and Escrow Company. By 1953, Manzana had become the second-largest home and commercial property insurer in California. In the 1970s, however, Manzana's growth began to falter in the face of high interest rates and intense competition from Golden Gate Casualty, a new entrant in the home insurance market whose corporate parent was one of the largest retailers in the world. Backed by its parent's resources, Golden Gate launched an intensive marketing campaign and precipitated a price war in an attempt to - 72 -  Manzana Insurance - Fruitvale Branch (Abridged) 692-015 gain market share from Manzana. Manzana fought back, and by 1988, the two companies were in a virtual tie for first place in the property insurance market. In 1989, Manzana was acquired by Banque du Soleil, a multinational financial services company, and new management was installed. Attention was directed towards tightening the company's underwriting standards, regaining market share, and reducing operating expenses. Less profitable lines of insurance were discontinued entirely, and operations at branch offices were reorganized on a geographic basis in order to improve the company's responsiveness to agents and make the company more market-driven. Organizational Structure Manzana operated through a network of relatively autonomous branch offices