Question 1. How is Fruitvale branch doing? Answer: 1. Branch profitability is declining.

It suffered a loss of $174 and $121 in 1st and 2nd quarter of year 1991. 2. Another big concern for Fruitvale is there weighted TAT days which is increasing every quarter. Since 2nd quarter of 1990 to 2nd quarter of 1991 it has increased from 5.1 days to 6.2 days. Number of requests processed in 2nd quarter of year 1990 was 2,401 where as it has reduced to 2391 in 2nd quarter of 1991. Percentage of late processed requests has gone up from 10.3% to 19.69%. 3. Renewals lost rate have gone up from 33% in 2nd quarter 1990 to 47% in 2nd quarter of 1991. 4. Branch has growth rate is almost stagnant in terms of request processed per quarter in spite of the fact that industry is experiencing moderate growth rate. Question 2. What are the causes of the problem? 1. In Fruitvale request are given priority as per the incentives associated with them. Under Writing team is processing in the order RUN, RAP, RAIN and RERUN. Since RUN and RAP are processed first at the expense of RERUN there is delay in processing of RERUN and hence many renewals request are either getting lost or getting delayed. FIFO basis is followed within these two priority classes. 2. Policy writers further sort out the work and tries to handle simpler jobs before more complex jobs. Due to this strategy, some of the requests can get much delayed. 3. Even though only 15% of our RAPS are getting accepting we are still investing lot of time and efforts in processing of this RAP requests. Also since RAP requests approval from originating agent can come any time with in 10 days its adding lot of uncertainty in our system. For example a RAP request approval can come very first day or it can come on 10th day. This will make allocation of time for various requests in advance more difficult. 4. We know the due date of RERUN one month in advance but we are sending the request to Distribution Clerks only 1 day in advance which leads to delay in RERUN and inflexibility. Suppose DC gets the RERUN request well in advance (say 1 week before due date) in that case this RERUN can be scheduled in parallel without disturbing the flow of RAP and RUN. 5. Agents expected a renewed contract offer from Manzana on or before the expiration of the old policy, and they were more likely to recommend other carriers to their customers when contract renewals were late. The number of late renewals of Manzana was at an all time high, causing a dramatic rise in the renewal loss rate.

1.Since the number of renewals are high and Fruitvale earns substantial amount of their revenue from RERUNs its imperative that request should be given priority according to the due dates and not based on incentives. 2. TAT should be calculated assuming that process can be run in parallel. Reduced TAT will help Fruitvale compete with its competitor like Golden Gate. 3. In exhibit 4 there is high coefficient of variation for distribution and underwriting process. The variance in the system increases the waiting time in the queue. The variance can be reduced by estimating the magnitude of the request before hand and pooling the requests to different queues as per the average time taken by the request. For example we can separate queues for request whose estimated distribution time is more between 100-142, 30-65, and 65-100 and on. 4. Since there are not many products within the insurance company a JIT system can be introduced wherein the flow process should be maintained and work can also be done by the pull system, that is scheduling can be done in order to meet the requests whose due date is near and which requires immediate attention. 5. Again since the customer contact intensity is moderate in the insurance sector, there is low variety there is a need for high standardization of the services which means that there should be a flow or cellular process.

6. Again, the assumption that 95% of the requests can be completed within the standard completion time is too high. Therefore there should be a realistic evaluation of the assumption, which should be less than the above. Concerning the problems stated, which were giving Bill Pippin the headache, our thoughts regarding the possible solutions of the problem are the following: the idea of how to increase productivity of the most problematical part of the company is to reduce variability in process times, meaning to reduce Cp value. Suggestion for doing this is by standardizing the processing by sticking to the FIFO method. What FIFO method support is that personnel should not put aside RERUNs, since the time needed for processing is the same as for other policies, meaning that there is no justified reason of not processing them as they appear. By attaining this, they will reduce inventory since they will not have any policies accumulated, improving our processing and consequently reducing our flow time. From another aspect of presented problem, by disregarding RERUNs, Manzana was neglecting customers which were, therefore, waiting for policy renewal. FIFO method will contribute to not giving priority to new policies, providing higher satisfaction among customers whose policies need renewal and who are stable source of income. Thus, additional value of implementing FIFO is decrease of renewal loss and renewals late. Further proposal is related to allocation of requests. During the peak periods requests should be distributed to the underwriting team with lower actual time. In addition to this, requests should be proceeded to underwriting teams regardless originating territory or agent. With this action teams would be equally loaded and problem of uneven workload will be solved.

The current priority system placed emphasis on RUNs and RAPs, as they were deemed more profitable. As such, RERUNs were constantly pushed to the bottom of the pile, resulting in a high percentage of renewals being late and lost. Ironically, RERUNs had a theoretical processing time of 172.3 minutes compared to 258.6 minutes for RUNs. Despite generating an annualized premium of $500 less than a RUN, RERUNs took 2/3 of the theoretical time to process. Territory Assignment Data analysis from problem 2 above shows that the distribution of requests and utilization is not uniform amongst the 3 teams. Team 1 is at nearly 93% utilization, subjecting the process to delays with even small amounts of variation and serving as the bottleneck of the system. At 71% utilization, Team 3 has much more room to work with before experiencing delays. 6. List of Actions 1. Consolidate 3 UW Teams into 1 pool: This will alleviate the high utilization on Team 1, and create a new process center with a utilization of 82.0% (Combined capacity 47.53 req/day). 2. Change the system in which RERUNs are released to the DCs the day before they are due. This is a major reason why there is such a high late renewal rate. Furthermore, base priority of requests by due date, not by perceived profitability or ease of accomplishing. Basing priority on due date will help cut down on late renewals. 3. Develop a better system of in-office distribution: By using a paper system, Fruitvale is allowing workers to sift through their inboxes and select the requests they see fit to work on. With computers and electronic delivery, a system can be set up that prioritizes by due date, and does not allow a worker to choose which request to work on. In addition, based on the huge discrepancy in theoretical time and average time, its possible this system will also streamline delivery and delay issues between stations. *Detailed calculations are set out at Appendix A. Tom Jacobs states that the Fruitvale branch is overstaffed. However, the current utilization rates suggest that there is insufficient reserve capacity in the system to handle variability in demand as the utilization rates are relatively close to 100%. A guideline of 80% utilization rate is suggested as a fair compromise between productivity and having the flexibility to respond to potential variability in demand. The Distribution figure is particularly concerning as the calculations do not even take into account the other responsibilities performed by that department such as analysing and disseminating industry data every month, verifying insurance competitors quotes and overseeing the ratings operations. This could cause bottlenecks in these areas so will be examined further below. Unbalanced workload amongst the Underwriting teams Another factor to consider is that the above calculation is for average utilization, using the average number of requests per day. This may be hiding the fact, highlighted by Tom Jacobs, that staff are overworked at times and idle at others. This is particularly likely to happen in the Underwriting team, who are only allocated jobs from specific agents. This can result in an uneven volume of work for each territorial team. If the same utilization analysis is used for each territory, it shows that this is in fact the case. Territory 1 1867 15.6 443.04 98.4% Territory 2 1657 13.8 391.92 87% Territory 3 1430 11.9 337.96 75%