Deming's Point #13 as Applied to the Insurance Industry

July 2007

Dr. W. Edwards Deming's point #13 is:

Encourage education and self-improvement for everyone.

by John Pryor
John Pryor Insurance Consulting, Inc.

From his classic book, Out of the Crisis, here's a brief review of his comments on this point:

• What an organization needs is not just good people; it needs people who are improving with education.
• There is no shortage of good people. Shortage exists at the high levels of knowledge—and this is true in every field.
• One should not wait for a promise of reimbursement for a course of study. Moreover, study directed toward immediate need may not be the wisest course.
• Advances in competitive position will have their roots in knowledge.

I'm tempted to say, "What more need be said?"—and stop right here. However, each of these points and subpoints needs to be applied to the insurance profession. This will have special relevance to those of us who see our "industry" as a profession where:

• Customers' needs are paramount,
• Insurance principles, practices, and processes are understood in depth, and
• Ethical behavior is consistently practiced … in our business that's been based on "utmost good faith and trust" for centuries.

Let's take Dr. Edwards Deming's subpoints of #13 one at a time.

What an organization needs is not just good people. It needs people who are improving with education.

If you've been following this series, you'll recall that Dr. Deming's Point #6 was "Institute Training."¹ It's critical to draw a clear distinction between training and education. The differences are major! One distinction I've always liked and view as highly valid is this:

• Training teaches you HOW you do something.
• Education teaches you WHY you do it.

The other distinction I like is that education gives you a solid foundation in insurance principles—principles that rarely, if ever, change. On the other hand, what we learn in a training session are the practices that emanate from these principles—practices that can change literally overnight—become obsolete and of no long-term value.

Both education and training have value, of course. It's simply a matter of difference in purpose. The key is to use both—as Deming recommends—but do so appropriately.

One common criticism I frequently hear is insurance education is too theoretical, while insurance training is highly practical. The fallacy of this criticism is fairly obvious. There are practical theories and impractical theories. Theory and practice are not opposites. A good education program, for example, CPCU, teaches practical theories.

An old friend from the Institutes, Evan Clingman, is remembered for his coining of a word about practical theories, one you may never see in any other publication (as Evan would be quick to agree):

Theopractiretical. [Pronounced: Thee-o-prac-ti-ret-i-cal]

It emphasizes the importance of understanding theories and principles that underlie what it is we do day in and day out. Whether it's a claim problem or a coverage issue, understanding "the fundamentals" is essential.

Understanding the principles on which insurance is based enables us to think through and solve thorny problems, even those with new and unprecedented circumstances—problems that others may not be able to solve. For example, if everyone involved in the Hurricane Katrina aftermath understood these principles, much litigation could have been avoided, not to mention the adverse publicity for a significant segment of our industry.

Finally, formal education tends not to vary by job function as does training. Anecdotal information "heard on the street" includes an ever-growing knowledge and skill gap, a gap between what underwriters, adjusters, brokers, and others need to know and what they actually do know.

According to Arthur Flitner, senior director of Knowledge Resources at the Institutes (American Institute for CPCU and Insurance Institute of America), the knowledgeable insurance workers are the baby boomers. As more and more boomers retire, the remaining "old pros" become increasingly scarce and therefore more valuable. A skilled underwriter in a specialty area can change employers at will, earn six figures, and receive a substantial signing bonus to stick around for a few years.

Mr. Flitner also comments that younger workers who should be filling the positions vacated by the "old pros" are, as a group, more likely to be pursuing formal education (typically MBA programs) than insurance-specific programs such as CPCU. Moreover, after pursuing formal education, younger workers may not want to spend additional time in insurance-specific educational programs, at the expense of spending quality time with their families. Consequently, as the "old pros" continue to retire, the insurance industry is likely to experience an insurance knowledge drain.

Mr. Flitner also comments that agents and brokers who must satisfy state-imposed continuing education (CE) requirements are finding that low-quality programs are the easiest, cheapest, and/or quickest to do. These attractive options crowd out time for real insurance education that takes more time and, in some cases, will not even satisfy CE requirements.

His concluding comment is this: Having to read and comprehend a college-level textbook seems to be a major obstacle to many insurance workers today. But some levels of knowledge cannot be attained without the willingness and ability to read and understand intellectually challenging material.

When I read Mr. Flitner's above comments, I have great respect for insurance professionals who want and need to enjoy more family time, as they should. However, there's such a strong correlation between formal education and the ability to provide well for one's family over time that these needs should not be viewed as mutually exclusive. Responsible family members should seriously consider "balancing" both needs and pursuing both goals.

Moreover, I really worry about the reports I see about increasing numbers of younger people demonstrating behavior patterns characterized by some as the essential elements of narcissism. This "me, me, me" generation will require a different management attitude and approach to professional development and leadership training. Time will tell if these strategies and tactics of insurance company management and educational institutions will succeed in this effort.

There is no shortage of good people. Shortage exists at the high levels of knowledge, and this is true in every field.

We also hear and see that insurers today are more focused on giving employees "mere training" as opposed to "real education," as distinguished above. Unless employees can see—on their own—how "real insurance education could help them move beyond their current occupation niche, they may start believing, erroneously, that what best serves their employer's short-term needs (mere training) also best serves their own personal desires for career advancement.

These trends are not unique to insurance. They tend to reflect trends within most if not all of contemporary society. For example, a recent Conning Research study of 15 insurers regarding their claims operations found the following.

• All 15 insurers are experiencing a shortage of personnel and are unable to retain people after hiring.
• However, training and development do not make each insurer's list of performance drivers over the next 5 years. Instead, such lists typically include technology, regulatory compliance, segmentation of process, and centralization. Nothing about professional development and education except as included in technology and compliance training (not education).

According to Donna Popow, the Institutes' senior director of Knowledge Resources in the claims area, a 2001 study by the Institutes' Center for Performance Improvement and Innovation found:

• 37 percent of respondents gave employees 2–4 weeks of training each year.
• 35 percent gave more than 4 weeks.
• 12.5 percent gave 1–2 weeks.
• 7.5 percent gave less than 1 week.
• The balance offered no training at all!

So, as we can see, 72 percent offer at least 2 weeks—which is excellent; however, the wording used is "training," not "education." That may or may not be the reality of these employers' programs. Perhaps "real" education is included as well. Let's hope so.

One should not wait for a promise of reimbursement for a course of study. Moreover, study directed toward immediate need may not be the wisest course.

What I especially like about Dr. Deming's philosophy is he clearly places responsibility on the individual to pursue his/her professional education and development—and do so without any promise of employer reimbursement. That's the proper source of personal motivation: internal, not external, motivation!

It's certainly okay for employers to encourage education and reinforce its value to everyone through payment for texts, tuition, examination fees, etc. Yet Deming's point is that self-motivation should come first and financial reimbursements or rewards second.

According to Ms. Popow, a 2006 Survey of Institutes' AIC (Associate in Claims) program completers revealed the following.

• The majority of respondents used the self-study method to prepare for exams, and 45 percent of the respondents preferred that method.
• Self-improvement and increasing their chances of employment or advancement were the primary reasons for undertaking the designation.
• 77 percent said their employer considered designations when hiring or promoting.

Anecdotally, we have learned that even though some insurance companies may still offer rewards and encouragement to employees who pursue real insurance education, the actual culture that exists in many companies does not reinforce the company's official stance on insurance education. For example, if most of your supervisors and managers have not themselves pursued real insurance education and one or more professional designations, that will speak louder to you than the words of official incentives.

Dr. Deming's third subpoint also focuses on the (career) horizon in which employees take education courses that fulfill both current and future requirements—not just something needed "next Monday morning," as Peter Drucker was fond of saying. That just-in-time course is the role of training. It's not the role of education.

According to Chuck Nyce, also a senior director of Knowledge Resources at the Institutes, employers are more willing to reimburse for formal education programs leading to undergraduate or graduate degrees within federal tax guidelines. Employers seem to be much more flexible in allowing the average employee to choose his/her own degree programs without recommending any schools or programs. This is good, of course, because it is long-term, and leads to lifelong learning.

Mr. Nyce also commented that the biggest trend is in the Executive MBA programs where companies target specific E-MBA programs for their managers and fast track employees. This trend is not as specific to the insurance industry. Any answer regarding formal education needs to discuss the E-MBA trends.

A similar emerging trend is the integration of MBA programs with CPCU studies and examination preparation, so both an MBA and CPCU can be earned concurrently. This collaboration needs to be encouraged wherever an accredited MBA program is found.

On another front, a survey conducted by the Institutes in 2006, shows dramatic growth of formal education within the insurance industry. Only 58 percent of respondents over age 55 have a bachelor's degree or higher, yet almost 80 percent of those who are age 34 or younger do. Here are the results of their study within this context.

CLICK HERE FOR STUDY RESULTS

Advances in Competitive Position Will Have Their Roots in Knowledge

As a broker for the past 45 years (with a recent conversion to risk management consulting), I've always looked for (at the very least) empirical data to prove this Deming subpoint; however, there's none available that I can find. There's a lot of anecdotal information that most of us see on a regular basis. Therefore, I simply consider this subpoint a "self-fulfilling prophesy." An attorney may (somewhat loosely) use the legal term "res ipsa loquitor"—the thing speaks for itself.

Lots of platitudes and sayings attest to the general understanding that "knowledge is power." The extent to which, if at all, insurance buyers attach value to a broker's knowledge is not really the issue here. What is the issue is how competitive a broker can be when armed with "more knowledge" than is a competing broker. All I can say is an unequivocal "Yes!" Certainly there are instances when political or unique pricing conditions alter the outcome, but even those conditions can and do emanate from "superior knowledge" on one side of the competitive battlefield.

The same can be said for underwriters, adjusters, and others who want to advance in their careers. Knowledge trumps lots of other selection criteria—not all, of course, but certainly most.

Conclusion

So, what conclusions do we draw from all these data and anecdotal information?

1. It's critical to understand the difference between education and training.
2. What we learn in an education mode are practical theories and principles that will be of value long-term—and help us solve problems—even those in previously unexplored complexities.
3. Training is still needed (see Dr. Deming's point #6 in this series). But what we learn in a training mode can become obsolete in the short term.
4. The "war on talent" continues in all fields. Yet, even talented people need continuing education and professional development … on a lifetime basis.
5. Employers should continue to support (financially and otherwise) an employee's professional development; however, absence of such support should not deter anyone from pursuit of formal education degrees and designations.
6. Self-study and study in small self-directed groups appear to be the preferred methods today for education. Classroom with "spoon-fed" information seems to be preferred for training.
7. Education and professional development planning need to be focused on the long-term, including study of leadership principles and practices as well as those of technical insurance topics.
8. Such planning needs to consider the current lifestyle needs of younger generations who need to balance their family life with their professional career.
9. "Knowledge is power" applies to one's competitive posture, whether in sales or career advancement.

To conclude, John F. Kennedy said, "Leadership and learning are indispensable to each other." That also "says it all"—almost as well as Deming's Point #13.

¹Note: In this case, "Institute" is a verb, not a noun or adjective. Therefore, please do not confuse Deming's admonition "institute training" with the "Institutes"—the Insurance Institute of America or The American Institute for CPCU. Dr. Deming, in this context, is not advocating for these two fine organizations!

Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author’s employer or IRMI. This article does not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.