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Harvard Business School Case On Operations Management: Manazana Insurance

1758 words - 8 pages

Founded in 1902 in California, Manzana Insurance specialized in commercial insurance, with property insurance, in 1991, making up 65% of its revenues, liability insurance 20%, and investment income and miscellaneous specialty lines constituting the remainder.Manzana operated through a network of relatively autonomous branch offices in 3 states of the United States of America - California, Oregon, and Washington. Each branch was treated as a separate profit and loss center. Its sales force comprised about 2,000 independent agents who represented Manzana and other competing insurers. Consequently, there were no exclusive Manzana agents.Manzana Insurance, founded in 1902, had a profitable home ...view middle of the document...

To identify and remove/ mitigate the bottlenecks in policy processing so that the turnaround time (TAT) is reduced and customer base is retained.To come up with an action plan to tackle late renewals and thus improve renewal rate. Late renewals have increased by almost 90 percent over the corresponding quarter in the last year. (Case Exhibit 6).Analysis1. Increasing losses:From Case Exhibit 5, it is evident that the decreased profitability can be attributed to a stagnant top-line (almost constant revenues) and an increase in commission expenses, losses (ordinarily insured and extra ordinary losses), operating expenses and other expenses.2. Drop in number of RERUNs:The revenues have remained stagnant in spite of an increase in the number of new policies (Case Exhibit 6 and table 1). This is due to a decrease in the number of renewed policies, leading to a significant decrease in revenues. Renewals have been the greatest source of revenue, comprising around 80% of the total premium revenue.3. Adverse Selection:It may be possible that the increased insurance payments and losses are due to the poor quality of service (in terms of the TAT -Turnaround time) offered by Manzana (refer exhibit 5). Normally, only people with a high degree of risk would willingly opt for poor quality of service, since they know that good companies would reject their underwriting proposal straightaway. This results in adverse selection and only those clients who believe that they have a high risk would go for Manzana Insurance.4. Number Game:It is also be possible that the underwriting team does not carefully evaluate all underwriting requests, in order to show an increase in the number of new policies and get their "salary/plus" bonuses. It can be seen from Case Exhibit 5 that the sales in 1st quarter of each year are quite low and they increase dramatically in the last quarter of each year. This may be the result of "dumping" - showing a particular amount of sales growth in a particular year to get commission (for agents) and "salary/plus" bonuses (for employees). Essentially, what this implies is that Manzana employees may be serving high-risk customers to increase the number of policies served, leading to excessive insurance payment outlays and additional losses.5. Underutilisation:The three underwriting teams are unevenly loaded with work. The first team (territory 1) has an extremely high level of utilization (98%), whereas teams two and three have very low utilization levels (79% and 71%) respectively (refer Exhibit 3). This load disparity may frequently lead to situations where one team is overloaded with work, and the other teams are under-loaded. This suggests that the division of territories on a geographical basis may not be the correct strategy.6. Profitability of various underwriting requests:It is seen that the renewal requests take the least amount of processing time and earn maximum dollars per minute of processing. Thus, RERUNS are the most profitable among...

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