Due by
8pm today!
Jeff Rommel’s introduction to
Florida could be described as trial by hurricane. Rommel took over Florida
operations for Nationwide Insurance in 2004. Over a 2-month period that year,
Florida experienced its worst hurricane season in history—four major hurricanes
(Charley, Frances, Ivan, and Jeanne) slammed the state, causing an estimated
$40 billion in damage. In the hurricanes’ wake, Nationwide received more than
119,000 claims, collectively worth $850 million.
Although dealing with those
claims was difficult, even more difficult was Rommel’s later decision to cancel
approximately 40,000 homeowners’ policies. Nationwide received a huge amount of
media attention as a result, almost all negative. In reflecting on the
decision, Rommel said, “Pulling out was a sound business decision. Was it
good for the individual customer? No, I can’t say it was. But the rationale was
sound.”
Hurricanes aren’t the only
weapons in nature’s arsenal, and the insurance industry is hardly the only
industry affected by nature. Consider the airline industry. American Airlines
has 80,000 employees, 4 of whom make decisions to cancel flights. One of them
is Danny Burgin. When a weather system approaches, Burgin needs to consider a
host of factors in deciding which flights to cancel and how to reroute affected
passengers. He argues that of two major weather factors, winter snowstorms and
summer thunderstorms, snowstorms are easier to handle because they are more
predictable.
Don’t tell that to JetBlue,
however. On February 14, 2007, JetBlue was unprepared for a snowstorm that hit
the East Coast. Due to the lack of planning, JetBlue held hundreds of
passengers on its planes at JFK, in some cases for as long as 10 hours (with
bathrooms closed!). To the stranded travelers, JetBlue’s tepid offer of a
refund was just as outrageous. For a carrier that prided itself on customer
service and had regularly been rated the top US airline in customer
satisfaction, it was a public relations disaster. Linda Hirneise, an analyst at
J.D. Power, said, “It did not appear JetBlue had a plan.” In
defending the airline, JetBlue’s founder and then-CEO, David Neeleman, said,
“Is our good will gone? No, it isn’t. We fly 30 million people a year. Ten
thousand were affected by this.” In responding to another interviewer, he
said, “You’re overdoing it. Delta screwed people for two days, and we did
it for three and a half, okay? So go ask Delta what they did about it. Why
don’t you grill them?” Eventually, though, Neeleman himself was affected
by it, and he stepped down.
Based on the above reading and
learning from your assigned readings, respond to the following questions:
·
Insurance companies in the
state of Florida earned record profits in 2006, suggesting in light of the calm
hurricane seasons (in Florida) in 2005–2007 that Nationwide’s decision to
cancel policies may have cost the company potential revenue and customer
goodwill. Do you think Rommel’s quote about making a “sound business
decision” reveals any perceptual or decision-making biases? Why or why
not?
·
Review the section on common
biases and errors in decision making. For companies such as Nationwide,
American Airlines, and JetBlue that must respond to natural events, which
biases and errors are relevant and why?
·
In each of the three cases
discussed here, which organizational constraints were factors in the decisions
made?
·
How do you think people like
Rommel, Burgin, and Neeleman factor ethics into their decisions? Do you think
the welfare of policy owners and passengers enter into their decisions?
