Deming's Point #8 as Applied to the Insurance Industry

December 2005

Dr. W. Edwards Deming's eighth point is highly relevant to all business today in general and the insurance industry in particular—especially in light of New York Attorney General Eliot Spitzer's recent allegations.

by John Pryor
Kern Insurance Associates, Inc.

Point #8 is three words long: Drive out fear. In other versions, Dr. Deming adds, ". . . so that everyone may work effectively for the company."

Dr. Deming makes several important comments within the context of this point:

• No one can put in his best performance unless he feels secure.
• Secure means without fear, not afraid to express ideas, not afraid to ask questions.
• Fear takes on many faces. A common denominator of fear in any form, anywhere, is loss from impaired performance and padded figures.
• Another loss from fear is the inability to serve the best interests of the company through necessity to satisfy specified rules—or the necessity to satisfy, at all costs, a quota of production.

Examples of these points are also listed by Deming:

• I could do my job better if I understood what happens next.
• I'm afraid to put forth an idea. I'd be guilty of treason if I did.
• I'm afraid my next annual review may not recommend me for a raise.
• I'm afraid I may not always have an answer when my boss asks something.
• I'm afraid to admit a mistake.
• The system I work in will not permit me to expand my ability.
• I'd like to understand better the reasons for some of the company's procedures, but I don't dare to ask about them.
• We mistrust management. We can't believe their answers when we ask why we do it this way. The management has a reason, but tells us something else.

An anecdote by Dr. Deming helps illustrate this point:

• A manager looks at a report of complaints by category. His eye falls on the highest figure on the paper; takes the telephone to wade in on the poor devil that is responsible for that category. This is another form of management by fear—and of management by numbers. Management's first step should be to discover by calculation, not by judgment, whether this category is out of [statistical] control with respect to the others [on the list]. If yes, then this category requires his special attention and help. He must also work on the system to reduce all complaints.

This anecdote means we need knowledge about the process—whether it's stable (common cause variation) or not (special cause variation). Control charting will give us this knowledge. Common cause variation is normal and leads to system improvement to continuously minimize such variation. On the other hand, special cause variation requires management intervention—to admonish employees or to do whatever is needed to return the process or system to stability. Fear can cause employees to distort data in reporting systems so (1) fear needs to be eliminated and (2) reporting systems need to be defined to help avoid distortion.

If you're unfamiliar with the operation and major value of control charts, it's not "rocket science." There are lots of illustrations and directions if you "Google" this topic. The best example I've found (for a nonstatistical person to use), is in Brian Joiner's book, Fourth Generation Management—How the Evolution of Management and the Revolution in Quality are Converging . . ." His step-by-step process for creating a control chart (pages 148–149) are very easy to follow—especially when you're starting with a run chart with data to transform into a control chart.

Fear is a difficult condition to identify within the insurance industry because it's usually a result of NON-action. Fear inhibits action. Whistle-blowing isn't extensively in evidence even in the wake of the Spitzer allegations. I'd like to think that's because there was nothing about which to blow a whistle. Recent admissions of guilt seem to be saying otherwise in some quarters. As one major insurance company CEO privately told me recently, "This, too, shall pass." I hope he's right. However, I suspect other issues will emerge over time—unless industry leadership drives out fear, increases transparency, and focuses on its customers (another value throughout many of Deming points).

Even during my service in the U.S. Navy (in the mid-1950s) where "command and control" management is required, we did not experience a culture of fear. It was a culture based on "duty to country"—as it is today even in Iraq. Speaking of Iraq, the regime of Saddam Hussein is an obvious, and extreme, example of a culture of fear. It's inconceivable to me how a corporate culture condoning fear can coexist with today's evolving culture of transparency and full disclosure. Perhaps this is one positive outcome of the Spitzer allegations and prosecutions.

Deming viewed it to be management's job to drive out fear.

As we've long heard, "bearers of bad news fare badly—to keep one's job, anyone may present to his boss only good news," Dr. Deming comments in his last book, The New Economics for Industry, Government, Education. "Don't shoot the messenger" is the metaphor most often used. Senior managers learned these principles long ago, if they want to expect good data sets for review and not be insulated from negative outcomes. The absence of fear facilitates the flow of valid data and reporting.

I suspect I should be happy that I have nothing anecdotal to add to this column as illustrations of "management by fear." In my 50 years of insurance company underwriting and agency/brokerage sales experiences, I can't recall any examples to illustrate Point #8. I further suspect they're "out there"—so any reader with an (anonymous, if requested) example will be welcome for use in future columns—on a "flashback" basis.

As the Spitzer allegations continue to unfold, it will be fascinating to see if any are "fear based" in their origin or motivation.

Another management giant passed from the scene as of this writing. I'm referring to Peter Drucker, of course. He talked about the importance of a top management environment in which dissent is needed and encouraged. He said, "The main reason why it is important to bring out dissents within the top-management group . . . is that there is never one right answer." Dr. Drucker will be missed but, like Dr. Deming, his principles live on.

Next in this series is Deming's Point #9—Break down barriers between staff areas. This offers lots of real-world examples in its application … or in its NEED for application.

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