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Group A5


1. How is the Fruitvale Branch doing?
The Fruitvale Branch of Manzana Insurance is facing a tough time. The number of policies
that it issues (RUNs, RERUNs, RAINs and RAPs) are either stagnating or registering a
decline over the years. It is registering a loss in renewal policies at a rate of 33% and this
number seems to be on the rise. This is leading to not only the loss of revenue but also loss of
goodwill among the agents who sell the policies and the insurers who are the final recipients
of the policies. As a result, their agents are deflecting towards other insurance companies,
particularly, Golden Gate, Manzanas fiercest competitor. Also, as indicated by the senior
vice-president, Tom Jacobs, the rating department and policy writing department are
overstaffed by almost 28.5% and 36.4% respectively; the review and distribution department
and the underwriting department are also adequately staffed. In spite of this there are large
turnaround times and delays in policies issuance, especially renewals.

2. What are the causes of their problems?

The primary cause of their problem is over emphasis on new policies (RUNs and RAPs) and
thus neglecting the less profitable policies (RERUNs and RAINs). To add to this, their
biggest competitor, Golden Gate was providing more attractive terms like a 1-day turnaround
period compared to Fruitvales 5-day turnaround period. The backlog of renewal policies,
shifting of agents to other insurance companies and loss of renewal policies due to the delays
and large turnaround time were leading to stagnation in profits.

3. Can you identify the problems in the way Manzana is calculating turnaround time in
Exhibit 3?
In the exhibit, the throughput time for each department has been calculated and then finally
summed up to determine the total turnaround time. This method is neglecting the fact that the
4 departments operate independently and not always in a sequential manner.
The appropriate way to estimate the total turnaround time would be to use the Littles Law.
We already have information about the WIP inventory (82 policies) and the number of policy
request that we receive per day (39 policies per day).
Thus, the actual turnaround time must be calculated as:

Group A5

Turnaround time = WIP/Policy request per day

= 82/39
=2.1 days.

4. If you were Bill Pippen, what would you recommend that Fruitvale do?
First of all, the priorities need to be clearly defined. Renewal policies must not be neglected
for new ones and the FIFO method must be followed irrespective of the revenue generating
capacity of a policy.
Next, they need to calculate and disclose appropriate figures for turnaround time. Right now,
the time being quoted is 5 days which is more than double the actual turnaround time. Due to
this due dates being assigned are also faulty and can be drastically improved.

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