Business Situation

This memo serves your request to address the operational and business situation at the Fruitvale branch, and offers some suggestions for you to follow for subsequent improvement. For more than a year, you have been experiencing declining profits, with a branch profit loss in your two most recent quarters. This quarter, you are far behind your chief competitor Golden Gate in several parameters, particularly average turnaround time (TAT) of requests (6 days vs. 2 days) and renewal loss rate (47% vs. 15%). These numbers are especially pertinent for the next quarter due to Golden Gate’s recent enactment of a guaranteed TAT of one working day on all new requests. Because your originating agents are becoming increasingly frustrated with your service (i.e. turnaround time), you stand to lose more ground to Golden Gate in Fruitvale if they can make good on their new policy. This is important because the originating agents are in fact your customers, and their satisfaction is crucial in stalling any declining profitability, and allowing increasing profits to return.

The first set of recommendations involves your prioritization of requests and how you handle them given the framework of labor you already have. First, you must follow a strict first-in-first-out (FIFO) system, i.e. there should be no prioritization for Requests for Underwriting (RUNs) and Requests for Price (RAPs) before Requests for Renewals (RERUNS) and Requests for Additional Insurance (RAINs), like you currently are prioritizing them. As mentioned, your renewal loss rate has increased to 47% from 33% this past quarter. With strict FIFO, RERUNs will not be put at the end of the request queue, more will be processed quickly, and ultimately more business will stay with you and fewer agents will defect to Golden Gate since more of them will be pleased with your service. Again, although it is not new business, failure to prioritize RERUNS results in loss of old business. Also, RERUNS generate $6,205 on annual premium and 172 minutes per request, while RUNs generate a modestly bigger $6,724 (’91) annual premium but 259 minutes to complete, indicating that continuing to prioritize RUNs over all other requests is detractive to the company. Additionally, I recommend increasing the commission agents receive on a renewed policy from 7% to 8-9%. Although more costly, this will be effective in dampening the negative affects of Golden Gate’s one day TAT on the agents by incentivizing them to be more patient with your slower TATs.

The next set of recommendations involves your capacity and utilization of labor. First, it is important to characterize the capacity of the four major divisions of labor: distribution, underwriting, rating, and policy writing (Exhibit 2). As calculated and shown in Table 1, the rating and policy writing departments are