6. An assessment of a centralized versus decentralized collection system Aa Aa Suppose the Physical Hazard Insurance Group (PHIG), a Connecticut-based insurer conducting business in all 50 states, currently uses a centralized collection system that requires all policyholders to send their monthly, quarterly, or annual premiums to PHIG's office in Hartford, Connecticut Under the current system, it takes an average of seven days for PHIG's premium checks to be received at the Hartford office and another four days to be processed by PHIG's Premium Processing Department. Once the checks are deposited in the Hartford bank, it takes an average of eight days for the in-state and out-of-state checks to be cleared and made available to PHIG. On average, PHIG receives per year 300,000 premium payments, which total $575,000,000 in annual premiums. The Hartford bank, which does not require a compensating balance, charges a monthly fee of $l,400 and $0.15 per payment Complete the following table for PHIG's current centralized system: Current Centralized Collection System 19 days Total collection time Total annual cost Atlas Financial Services Inc., a bank based in Kansas City, Missouri, is offering to create and operate a decentralized collection system for PHIG by establishing five regional collection bank accounts at its San Francisco, Denver, Dallas, Philadelphia, and Atlanta branches. Notice that these regional branch accounts, which are located across the country in cities with Federal Reserve Banks, were selected to reduce the mail time required to return the funds to Hartford These locations also create two alternatives for the movement of collected funds from the five concentration accounts to the master collection account: either by mailing a check or by wiring the funds to the Kansas City account. Under Atlas's mail-based proposal, the mail time from the customer to the regional concentration banks will be reduced to three days, and since the payments will be sent directly to the banks, the payment-processing time is reduced to one day. Each week, each concentration bank will send a list of customer names, policy numbers, and payment amounts to PHIG's Hartford office to be posted separately from the payments to the customers' accounts. Since the payments are cleared relatively locally, through the regional concentration banks, the check-clearing delay is reduced to three days. Each regional concentration bank will then mail a check to the master concentration account at Atlas's Kansas City branch. The funds will be available to PHIG two days after receipt from the concentration bank
