Quomodo actuary an cogitas? How does an actuary think?

‘The Thinker’ was originally conceived as part of Rodin’s design for a set of bronze doors for a museum in Paris. This figure represented Dante Alighieri, an early Italian Renaissance poet. Rodin depicted Dante reflecting on The Divine Comedy, his epic poem about heaven, hell, and the fate of all humankind[1].

Edward De-Bono sculpture.

Edward de Bono died on 9 June 2021. He was 88. He pioneered the concept of ‘lateral thinking’. Edward was one of the world’s most creative thinkers.

I was lucky enough to meet and be influenced by Edward in the late 1970’s when he visited Sydney. Cathy Lyn has been influenced by him too. Cathy is a past president of the International Association of Consulting Actuaries and of The Caribbean Actuarial Association. In April 2021 Cathy, through the Caribbean Actuarial Association, ran a Zoom conference on lateral thinking as a component of that association’s diversity of thought series[2]. Kudzai Chigiji a prominent actuary from Zimbabwe delivered a powerful presentation.

58 years ago, in my first university lecture in philosophy I was introduced to Rene Descartes’ philosophical statement “cogito ergo sum” – “I think therefore I am”. That started me thinking about thinking. Because of Edward’s death and Kudzai’s presentation in April, I decided to re-explore thought processes but just in relation to actuaries.

The actuarial profession is a thinking profession – perhaps the ultimate thinking profession. Rodin’s sculpture of the thinker is usually thought of as representing philosophy, but, to me, Rodin’s sculpture could represent the actuary.

There is a great diversity of actuarial thinking. This diversity of thinking is to be celebrated. We could not have a profession if every actuary thought in the same way, even if that would have made the work of our examiners easy. This raises the issue of whether actuarial diversity of thinking should rank above other diversities. The diversities of race, gender, sexual orientation, religion, and culture are mainly bestowed upon us by our genes and our environment. Our thinking ability is partly genetic, partly environmental, and so clearly influenced by these other diversities, but we also can have some control – should we wish to exercise it.

Our thinking ability is different from our thinking style. Thinking styles can be learnt and adapted to suit the situation. This just takes skill and discipline. Discipline is an attribute that actuaries have in abundance. So, individually, we can influence our profession’s diversity of thinking styles. I suspect many of us can also adapt our thinking abilities and styles once we understand how.

Edward de Bono’s book Six Thinking Hats suggests we can use role playing to adjust our thinking styles. However, sometimes we must also adapt our thinking ability to play a thinking role.

I sometimes use the concept of dimensional thinking. Dimensional thinking helps to trick your mind to expand its thinking beyond its usual boundaries.

So thinking is not a simple topic even for actuaries. There is no universal paradigm on the various types of thinking abilities or on the different thinking styles. There is not even a clear separation between thinking abilities and thinking styles.

Thinking Ability

I suspect there are five types of thinking actuaries use to solve problems. These are vertical, lateral, convergent, divergent, and holistic.  It is possible to have several of these abilities but not at the same instant. To adopt one thinking ability after using another takes discipline. Most of us use only one thinking ability most of the time.

Vertical thinkers think of in terms of a ‘top down’ or ‘bottom up’ approach to the analysis of a problem and its associated data. They tackle a problem very directly and tend to only consider the essential elements of a problem’s data. Vertical thinkers can have ‘tunnel vision’. Vertical thinking is typically one dimensional. You keep following your line of thinking until you get to your conclusion!

Lateral thinkers come at problems very differently. They often examine data elements of a problem that vertical thinkers might see as irrelevant. Lateral thinkers can also be the smart asses who have an initial hunch about the solution to a problem and will then try to prove or disprove their hunch. Edward de Bono was once famous for suggesting Britain export Marmite to the Middle East as Marmite is rich in zinc and Middle Eastern diets are generally deficient in zinc. Zinc is supposedly calming. Lateral thinking is a subset of two-dimensional thinking. It is the two-dimensional thinking that is not confined to the boundaries of the problem environment, which is normally designated as a square. Hence lateral thinking is often described as thinking outside the square.

Convergent thinkers are somewhat like lateral thinkers in that they will also come at a problem from many data angles, but they do not have an initial hunch about the solution. So convergent thinkers solve a problem by deductive reasoning, converging from their many angles of approach. Convergent thinking could be also called three-dimensional thinking. In our profession, those who use the concept of three-dimensional thinking to solve a problem will invariably stick within the strong environmental boundaries of our codes of ethics and conduct. So, like two-dimensional thinkers usually being confined to a square, three-dimensional actuarial thinkers are normally confined to within the cube of prescribed actuarial thought processes. I prefer to think of this cube as being a coffin! Although that term might be offensive to some actuaries, some of the problems actuaries may be asked to solve cannot be solved when we only confine our thinking to that permissible in our professional environment. So, reasoning that there is ‘life outside the coffin’ helps one escape it when necessary.   

Divergent thinkers have an approach that is more scattergun. This can take them off in directions that will never lead to a solution. But we need divergent thinkers in society because some societal problems are best solved by teams of thinkers who think divergently. I wonder if there are any actuaries who believe they always think divergently. Divergent thinkers tend to think in one or two dimensions, but it is conceivable for this to be a three-dimensional process.

Holistic thinkers are the most interesting actuaries.  They can be like other thinkers but see the problem in terms of a much bigger picture so they will bring into play the environment or the ecosystem in which they think the problem lies. They may see a problem as part of a family of other problems even if the rest of the family does not appear to be genetically related at all to the problem at issue. Typically, holistic thinkers are three-dimensional thinkers who often get out of the coffin.

I wonder if any actuaries are consistently four-dimensional thinkers.

There can be no bounds in space or time to four-dimensional thinking. So being consistently bound to our constraints of actuarial codes of ethics and practice would be unattractive to such thinkers. Albert Einstein was a four-dimensional thinker.

On becoming aware of these types of thinking abilities you can analyse how you are able to think. Would you like to train yourself to become, for example, more holistic or more lateral in your thinking ability? 

Personal Examples

So how do I think? When I was young teachers thought I couldn’t think. I was always the naughtiest, most disruptive kid in the classroom. This was because I was one of the tallest and so had to sit up the back of the class. No one knew, least of all me, that I was stone deaf in one ear so couldn’t pick out a teacher’s voice above the background noise from 50 kids in a classroom. When, at age eight, a doctor finally diagnosed my deafness he said not to worry because the other ear had compensated. Presumably, he did not know the difficulty that a person with single sided deafness has in discerning any one voice in a noisy background. My school was not advised. It was only when I was 12, after being particularly disruptive, my very exasperated teacher put me at the front of the class. Then I began to learn things. A few years later I often taught my maths teacher “elegant” ways of solving his maths problems. It seemed that even then I had the ‘gift’ of being able to think laterally.

In 1974, a year after I qualified as an actuary, I took on the job as an actuary for the HCF health fund just at the time the Medibank legislation was being considered by the Australian Senate. When the legislation passed, one Senator remarked that “the health funds will wither on the vine”. I had other ideas, although I did not know how to achieve them. I was then the only actuary working full time in health insurance in Australia.

The Medibank scheme removed all the medical benefits business from health insurers. This had been administered through the extensive branch networks of the large open registered funds or via head offices of smaller employer or union-based insurers and facilitated by internal mail arrangements. Once the medical claims tail had dried up the branches of the major funds would have had to close. Then contact with memberships would have been difficult and the funds would have withered away. This was because the remaining hospital insurance could be administered without face-to-face contact. Many health funds did not have computers in 1974, and those that did, their computers had less than 0.1% of the computing power of a current mobile phone.  So, to ‘save’ the industry (and my job), I had to save the branch networks of the major health funds.

My solution was to develop a dental and ancillary benefit insurance to be introduced on 1 July, 1975, when Medibank commenced. Dental insurance had been a disaster everywhere overseas because of moral hazard.

Optical prosthetic insurance also did not work for the same reason. Physiotherapy and pharmaceutical cover had been offered in Australia before, but insurers had lost money on these as well. My hunch was that if you included all these benefits in the one insurance product then much of the moral hazard risk would be ameliorated if one component did not dominate. This was to be proven correct.

But how to cost such a complex product? There was no data! So, I jumped right out of the actuarial coffin. I went off and talked to the providers. I was able to obtain rough details of what services were being provided by each group of providers and the Australian Dental Association’s fee schedule. I got lots of friendly advice as to what the likely traps were. Everyone wanted to help. No one in the wider health industry wanted to see the health insurers “wither on the vine”. By creating crude models of each health modality’s likely income levels and the percentages likely to be met by my insurance product piece by piece I was able to put together the product parameters and its costing. Then I submitted the 150 pages of the planned product and its costing to the then administrator, the Commonwealth Department of Health. Although the current legislation did not permit such a product, the Australian economy was heading into a deep recession so I convinced the DOH personnel that they would all lose their jobs if they did not get their Minister (the Hon. Bill Hayden) to agree to it. I got the approval. I then convinced the CEO of HCF to copy the whole submission 77 times and give it to every health insurer in Australia so that we would keep our competitors and the branch networks of all insurers would largely be saved.

Two of the many interesting problems I encountered during the development of the product were resolved through lateral thinking. Firstly, there were acupuncturists in Australia who had been well trained in two colleges for three years. But there were other people practising, including doctors, who had done a three-week course in acupuncture in Hong Kong. Others with acupuncture shingles were charlatans. But I did not know anything about acupuncture. Was it even worthy of health benefits? So, I read as much as I could and subjected myself to some experimental treatment. Once I was satisfied it did work, I had to figure out how to enable acupuncture benefits to be available just to the patients of the appropriately trained acupuncturists without getting landed with anti-discrimination suits.

So, I proposed the idea of an Acupuncture Ethics and Standards Organisation to Acupuncture Colleges Australia. Then I helped them set this up to act as the registry body. AESO became administered by ACA with the help of the other reputable college.  

Secondly, chiropractic benefits were also difficult to organise as there were two main chiropractic bodies in Australia, but they hated each other and kept giving me conflicting advice. I invited the presidents of each body to a meeting in my office at the same time without either of them knowing the other would be there also. After their mutual animosities had subsided, I convinced them to amalgamate – “if they wanted their members’ patients to get chiropractic benefits”. They amalgamated!

A sequel to the development of the ancillary benefits program occurred just before Christmas in 1975. My medical entrepreneur neighbour held a cocktail party on a Sunday evening. He told me earlier that day that his friend Senator Peter Baume, the new Fraser government’s Senate’s spokesman on health would be coming. That got me thinking about the health promises Prime Minister, Malcolm Fraser had made during the election earlier in December after the constitutional crisis. But more particularly, I started to think about all the things that he did not make promises about.

In the next couple of hours, I hand wrote a ten-point plan on how to reform Medibank without breaking any of the election promises. I gave this to Peter that night. A few months later I got a phone call from Peter and when I answered he just said I have got Ralph Hunt on the line. I was then speaking to the Minister of Health. “Brent, get your arse down here tomorrow at ten in the morning”. “Why?” I asked.  “To go through the legislation that you designed”. This became Medibank Mark two, which was the genesis of the national health insurance scheme that we have today including the risk equalisation arrangements of which I became the initial trustee. The only components of the ten-point plan not accepted by the government were two suggestions that would have reduced the moral hazard risk health insurers still have to grapple with today. That ten-point plan took less than two hours of lateral thinking!

Has this got you thinking? My hope is that readers will get ideas about how to train your mind to think dimensionally, creatively and laterally. Can you become bold enough to jump out of the actuarial coffin when necessary? The more we can diversify our thought processes the more diversified our profession will become.

Vale Edward de Bono.

This article forms Part one of a two-part series. Read up on part two where Brent will discuss other ways of thinking and Edward de Bono’s playing mind tool.

 

 

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