The Life and Lies of Bull Shitting

10

Problem Definition:

The case talks about the inefficiencies in operations at Fruitvale branch of Manzana Insurance Company. Major concerns are:

1) High and increasing Turn-Around Time (TAT) - Total time required to completely process the insurance request compared to its competitor, Golden Gate. Golden Gate has recently announced TAT of one day, which can add serious competition-resulting in increasing renewal loss rate (47%) and late renewals (44%).

2) Declining profitability- the branch reported a loss of $174,000 and $121,000 during the first quarters of 1991.

3) Backlog of policies.

4) Improper work load balancing among employees resulting in tighter schedules and idle times.

Factors Affecting the Performance:

As stated in the problem statement, the inefficiencies of the organization results in an increased TAT. We shall now look at the factors increasing TAT.

1.

Though the company's policy was to use FIFO system at each stage of the underwriting process, RUNs and RAPs are given more priority over RAINs and RERUNs. This is because of the new policies are the most profitable ones and also the general perception that customers will anyway renew their policies. Also the company's compensation policy is to pay incentive payment for new policies written. In case of RUNs, agents receive 25% commission where as in case of RERUNs, they receive only 7%. Hence, for both the agents and employees emphasis is on following for new requests. This results in increased backlog of RERUNs and sending notice to agents in last day.

Prioritizing:

2.

The capacity utilization calculation shown in exhibit 2 is below 80% for rating and policy writers. The reason for the same can be increased waiting time and uneven pattern of loads given by utilization team. The capacity calculations of the underwriting teams in Exhibit 4 show that there is a level of uneven load distribution among the teams. The team 1 has a high level of utilization at around 97%, while teams 2 & 3 have utilizations of around 78% and 70% respectively. So there will be situations where one team is completely loaded while the other teams may not have that much of work to do. Hence we can say that the strategy being followed by the company in allocating different territories for different teams might not be the correct strategy for the company in its present condition to follow.

Underutilization:

3.

According to the data given, over the last quarters, the company has some 44% of renewals processed late and 47% of renewals lost. When company gives very short notice for RERUNs to agents, they tend to recommend other insurance agencies to clients. The inability of the company to provide timely processing of RERUNs is causing the loss of a large volume of valuable customer base, thus reducing its revenue and hence the profitability.

Loss of Renewals:

4. Very low conversion of RAPs to RUNs

Though the conversion rate of RAP to RUN is only 15%, it had been given a high preference, next only to RUN and also they take up a significant time for processing. But, then considering the conversion percentage, this priority doesn't sound valid. :

Process Flow & Capacity Analysis:

Now that we have seen where Fruitvale branch is going wrong, let us analyse how much impact it has on their operations.

Turn Around Time:

Turn-Around Time (TAT) is the total time required for complete processing of one policy.

According to the case, TAT is calculated and found to be 8.2 days.

However, there is couple of flaws in the method used to calculate TAT:

1. The mean time for processing should be considered for the calculations instead of the 95% SCT (Standard Completion Time). Mean process time provided already accounts for time required for non-productive work.

2. Once the process reach a steady state, the TAT will not be addition of through put time of all 4 processes as the processes will run parallel, reducing the overall TAT. Moreover, it will also depend on the individual loads of UT teams 1,2 & 3.

Hence,