Manzana Insurance

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in California, Oregon, and Washington. It treated each branch as a separate profit and loss center, with the authority to underwrite insurance, collect premiums, and settle claims within its territory. Like many insurance companies, Manzana did not deal directly with the public. Instead, its sales force consisted of about 2,000 independent agents who represented Manzana and other competing insurers. As a result, maintaining close and cooperative relations with the independent agents was a critical factor in building and sustaining market share and profitability. When Manzana reorganized its underwriting staff in early 1990 along geographic lines, each originating agent was assigned a specific underwriting team (consisting of an underwriter and a technical assistant) to handle all of that agent’s property insurance needs; each team was also responsible for handling all of the insurance needs of the agents within its assigned territory. Depending on the location and the volume of business generated, a typical underwriting team served from 20 to 25 independent agents. The smallest Manzana branch had two underwriting teams supporting about 40 agents, the largest had 14 teams and supported over 300 agents. Fruitvale was one of Manzana’s smaller branches, with three underwriting teams supporting 76 agents in three geographic territories. Agents were paid a 25% commission for each new policy sold on behalf of Manzana. In addition, they could earn an annual bonus based on the volume of business they placed with Manzana and the loss history of their insurance sales; this was known as their "book of business." Agents also received a 7% commission for each policy that was renewed. Manzana branch employees were designated as hourly, salary, or "salary/plus" employees. The latter term referred to those receiving an annual salary plus an incentive payment for each new policy written above their established quota. Manzana instituted salary/plus in 1990 in an attempt to retain its most senior underwriters (those with more than 10 years’ experience), who were being intensively courted by Golden Gate. In 1991, all Fruitvale’s underwriters and John Lombard, the branch manager, were compensated under the salary/plus program. Property-Liability Insurance Property-liability insurance could be divided into two categories: commercial insurance, which provided coverage against loss, damage, or liability arising from unknown or contingent events for businesses, institutions, and public agencies; and personal insurance, which included automobile and homeowners’ policies for individuals and families. Each category could be divided further into two broad classes of policies: property insurance, designed to indemnify a property owner against loss of property due to fire, flood, storm, and so forth; and liability (or casualty) - 73 -  Manzana Insurance - Fruitvale Branch (Abridged) insurance, which provided protection against liability arising from an act or omission of the insured which caused injury to a third party. Manzana 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. Until the mid-1960s, Manzana wrote almost no liability policies, but as competition from Golden Gate forced it to lower its rates on property insurance, profitability fell and the company began to expand its other lines of business. By 1980, Manzana was writing so many liability policies that revenues from this source were almost equal to those generated by property insurance. Then, in the early 1980s, just as property insurance premiums were stabilizing at a satisfactory level (and commercial insurers were returning to profitability), the so-called liability insurance crisis occurred, and liability insurers, including Manzana, found that the rising level of settlements paid on liability policies were making them unprofitable. Manzana posted its first annual loss in 1985, setting the stage for its takeover by Banque du Soleil in 1989. The new management had adopted a back-to-basics strategy, concentrating its efforts on cost control and the rebuilding of Manzana’s share of the property insurance market. Some smaller branches, such as Fruitvale, refocused on property insurance only. Underwriting Underwriting was the technical term for the entire process of insuring a risk. At Fruitvale three teams handled underwriting. They served 76 independent agents and were supported by a number of distribution clerks, raters, policy writers, and miscellaneous office personnel. (See Exhibit 2 for a diagram of the operations flow.) The process of writing a new commercial policy usually began when a distribution clerk received a written Request For Underwriting (referred to as a RUN) from an agent (called the originating agent). The distribution clerk logged in all incoming requests, entered data into the computer for transfer to other departments and for future retrieval, and distributed each RUN to the underwriting team responsible for handling that RUN’s originating agent. Distribution was also responsible for analyzing and disseminating data published each month by the state insurance commissioner, researching and verifying insurance rates quoted by local competitors, and overseeing the rating operations. After each RUN was passed to its assigned underwriting team, that team took responsibility for evaluating, selecting, classifying, and pricing it. After review and classification by the underwriting team, the RUN went to the Rating Department, where policy premiums (the prices to be charged) were calculated based on the team’s instructions. Although the rating position had once required significant computational and technical skills, the advent of desktop computers made the job almost purely mechanical. From the Rating Department, a RUN was transferred to the Policy Writing Department. Policy writing encompassed the actual typing, assembly, and distribution of completed policies, although the computer had altered the nature of this function as well. Few policies in 1991 required actual typing. Instead, the emphasis was on selecting the appropriate pages for each individual policy from a computer data file of standard pages, as specified by the underwriting team, and printing and assembling them into a finished package. As a result, the time required to process an average policy in this department had decreased significantly during the late 1980s and early 1990s. Once printed and assembled, each policy was sent to the insured party; a duplicate was sent to the originating agent, and a copy was retained in branch records. - 74 -  Manzana Insurance - Fruitvale Branch (Abridged) 692-015 Issuing new commercial policies