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Curricular Concepts in Risk and Insurance

Teaching Principles of Insurance and Risk By The Contract Method

Darwin B. Close

At the university level, the necessity to seek new and more effective means of higher education is inescapable. Literally surrounding today's professor are more and more urgent demands for better, cheaper, and more efficient teaching. These demands take the form of increasing resistance to the higher costs of higher education. Those involved in publicly supported institutions are painfully aware of the reluctance of state legislatures to continue to provide larger and larger amounts of aid. Private institutions, as well, recognize the seriousness of having every year to ask students and their parents for yet more tuition.

Perhaps one major reason for the resistance to higher educational costs is the feeling on the part of legislators, students, university benefactors and general public that the quality of education is not improving. The student riots of a few years ago had to have been caused in part by their feelings about the inadequacy of the learning process. Obvious cost-cutting steps, such as larger classes, computer assisted instruction and television teaching, have resulted only in an increased alienation on the students. The extent of the students' involvement with the professor and with the establishment of the processes of the learning experience itself has been reduced during the time when students are demanding a greater voice in the governance of their institutions.

Major dissatisfaction with the typical lecture approach can be ascribed, in part at least, to the lack of opportunity for student input into the presentation method and course objectives. Another major source of discontent has been the arbitrary and subjective nature of the grading process. Multiply choice examinations are criticized because all too often the items tested are minute points, often largely irrelevant to a basic understanding of the course material. Then, too, a good test score sometimes hinges upon the students' ability to see through tricky language and obscure wording and results often do not correlate with a pupil's real understanding of the subject matter. Essay examinations are criticized because they can cover only a few aspects of a course at any depth and because grading essay tests is likely to be a very subjective process.

The Contracting Process

Contract teaching is a development aimed at reducing some of these discontents. Briefly, it is a technique whereby the professor and student, more or less mutually, arrive at a program of work, the satisfactory completion of which results in the student receiving the agreed upon grade for the course. A contract between the professor and student is drawn, using a form which in general terms outlines the requirements of each specific grade and has space in which the student specifies how he will meet these requirements.

At Ohio State University (OSU) during the winter quarter, 1973, two sections of the principles of insurance of risk course were offered. The sections met twice each week for two hours. Each had approximately the same number (40), and there appeared to be no basis for distinction between the classes. One section met from 10 a.m. to noon, the other from 3 p.m. to 5 p.m.

The morning class served as the control group, the class being conducted exactly as in quarters past, with the final grade a function of qualitative performance on the various tests and assignments.

On the first day of class, the afternoon section was given the information reproduced below (Exhibits 1 and 2), and the ideas and objectives of contract teaching were discussed. The students were given an appointment schedule with the professor, broken into 15 minute segments, over the subsequent several days. Approximately 10 hours of interviews were required to enable each student to negotiate his contract. Each student reviewed the blank contract form and the background information and was urged to give thought before this appointment to the grade he wished to attain and specifically how he planned to meet the requirements for the grade he selected.

Note that the contract indicates in the left hand column the general levels of performance required for each grade, while the right hand column permits the student to detail specifically how he will demonstrate he has reached he required competence. The student understood that in the event he was unable to fulfill his contract he could renegotiate to a lower letter grade at any time. Renegotiations to a higher grade were permitted only during the first four weeks, recognizing that the commitment to an A or a B grade was considered a quarter long commitment that could not be met by a week or two of concentrated effort. In this case, approximately twenty-five percent renegotiated downward as the quarter progressed.

With this case, twenty-seven students contracted for A's and fulfilled their contracts. Four others renegotiated from an A grade, one to a C grade and three down to the pass-nonpass option. Five contracted for a B grade and fulfilled their contracts. Four more renegotiated, one to a C grade and three to the pass-nonpass option.

Thus: 27 students received A grades

5 students received B grades

2 students received C grades

6 students received the pass-nonpass option (all six passed; none failed to complete the basic course requirements)

Generally, the basic insurance and risk course is composed of business school majors in finance, marketing, accounting, and management, along with a number of business education majors from the College of Education. Insurance majors typically take this beginning course in the autumn quarter; consequently, fewer than 10 percent were insurance majors in each class. As a result of the mix of students, Item B in the course contract required some kind of study relating the student's major to the area of insurance and risk. A finance major was encouraged to select a topic relating finance to risk and insurance. One student, for example, did a comparison of the investment portfolios of new life insurance companies and those already established. Since the Columbus, Ohio area has six life companies less than five years old, he was able to secure interviews and first hand information. A marketing major did his paper on transportation insurance, utilizing our logistics people and interviewing some of the large trucking firms located here.

Each student, then, looked at insurance and risk from the point of view of his own discipline. From the business education major's high school lesson plan for teaching insurance to the accounting major's discussion of the vagaries of insurance accounting, each viewed insurance differently by viewing a different facet of it. Each got a clearer understanding of its relationship to his own area of interest.

While this requirement daggered for each student, it also differed from the other course requirements. Acceptable course performance was based upon the student completing a series of activities rather than demonstrating higher levels of competence for one grade than for a lower grade. The concept is a little like climbing a mountain, the more levels you reached the higher your grade become.

If a student were taking the course on a pass-fail basis, he needed only to pass the midterm exams and the final, the assumption being that mastery of these tests would require a relatively regular class attendance. For a C grade the student must have met the pass-fail requirements and, in addition, have completed his own life programming which was based upon class discussion, illustration, and certain assumptions (e.g., he had to assume he was married, the parent of two children, and fully covered by social security, at a point in time six years after graduation from college). The student wishing a B grade then added the requirement for a paper to the test and programming assignments. Those wishing to contract for an A additionally selected a topic from a detailed list of topics and developed an annotated bibliography some fifteen or twenty items in length. Each subsequent step was of a different nature. Test competence, a life program, a term paper, an annotated bibliography; these things were designed to demonstrate a broad familiarization with the topics under study. The qualitative aspects were thus underplayed since in each case the assignment was either "acceptable" or "unacceptable".

Acceptability necessarily is somewhat subjective, but this did not appear to bother the student since unacceptable work did not affect his grade. The student understood that such work would be repeated until it was satisfactory. One bad score, therefore, did not destroy the student's chances of receiving a good grade in the course. Tests were scored numerically for comparison with the control group, but each question (in a five question essay exam) was marked only in the test booklet as satisfactory or unsatisfactory. The breakpoint was a score of eight percent or a score of sixteen out of twenty for each individual question. Any question missed meant a retest on that general subject area in the concluding minutes of the next class.

This test-retest aspect of contract teaching is its fundamental difference. The issue is whether or not the student has attained the knowledge the teacher feels is necessary. Even if it takes two trials or three, contracting requires that he get it. The grades themselves are of questionable value in normal circumstances. Frymier notes:

Some researchers suggest that only about half of any group of typical students is really affected by their grades. And of this number, half are encouraged if they receive good grades, while the remainder put forth their greatest effort if they receive poor marks. In other words, about 25 percent of them supposedly work harder when they get good grades, another 25 percent work harder when they get poor grades, and the remaining 50 percent are not affected one way or the other.

In contract teaching, however, grades take on a different significance. Grades are related directly to how much one understands about the subject matter; therefore, grades have a different motivating effect. In a typical college classroom, the student is required to achieve in specific areas. He is willing to expend certain hours of his energy and attention in order to score well in the course, yet in spite of his work, he may not get the grade he wants. Contracts guarantee the student the grade if he does the work. It takes the uncertainty out of the grading process. Because of this, the student is willing to perform at a much higher level.

Normally, the life program, term paper, and bibliography requirements would be considered excessive. Students have felt that these coupled with the reading assignments and exams were too much to expect for a four credit hour undergraduate course. This was true mainly because the student could do all this work and still end up with a bad grade. As mentioned, the subjectivity and pure chance aspects of the testing process. Further, this was not necessarily because of his own incompetence or state of preparation. Consequently, he was willing to do more if he could avoid the uncertainties involves in working for grade. In the contract interview, one student said:

Professor Close, I've been B plussed up to here. I've probably just missed an A in twenty courses. The only A's I ever got were in a freshman math class and physical education. I don't care what I have to do to get an A. I will do it if I can be sure of the grade.

Such sentiments indicate the efficacy of contract teaching. In the experiment here, there was no discernible different between the test performance of the two groups. The contract group scored a higher average on the first exam and fell about the same amount below the control group on the final examination. Taken together, no significant difference was discernible in the overall quality of the test results.

Two considerations may have been responsible. First, because interaction between the two classes was impossible to prevent, the control group knew they were a control group and that a pedagogic experiment was underway. Such a situation sometimes leads to the widely recognized "John Henry" effect in which control groups often work hard because they know they are in competition. Also, those in the contract course soon recognized that with essay testing they could make a more superficial preparation for the examination since it was relatively easy, ex post, to concentrate on the specific area of the examination which was unsatisfactory. Such a result is less likely if a fairly detailed multiple choice test is utilized.


The OSU experiments did not justify use of the contract method from the point of view of qualitative performance. Test scores of both classes were nearly identical. But since the objective of contract teaching is attainment of an acceptable level of understanding, the process through which the students had to go back and study areas where they were weak for retesting resulted in a more complete mastery of the subject areas tested. In the control group, by contrast, fewer than twenty percent stated that they went back and restudied any of the areas they missed. Most students stated that the professor's subsequent discussion of the tests when it was handed back was their only exposure to the areas that they missed.

The major advantages of the contract approach were three. First, the hours of interview in the first days in the quarter provided an excellent chance to get to know the students and their background, and this lubricated the class operation throughout the term. A large number of students were known by name more quickly and the professor, having a better understanding of their backgrounds, was able to emphasize those items of most value to the students. This understanding is especially valuable when operating on a ten week quarter system since the students are passing on at just about the time the professor begins to know them.

The second major advantage was the greater quantitative aspect of the students' performance. In most cases they did substantially more work in order to be assured of their grade. This aspect cannot be discounted; it is important that the students were willing to do more work under these circumstances.

Finally, the last advantage of the approach is found in the utilization of democratic processes in the classroom. Because the student selected his own grade and had considerable input into how he could meet course requirements, he viewed the course more favorably. The general feeling was that they felt themselves less affected by arbitrary establishment of course objectives unilaterally by the professor, by subjective grading processes, and valued the opportunity for mutually developed course objectives.

The contract approach is more work for the professor as well. Record-keeping and student contact increases. The heightened satisfaction of the students, however, makes the extra work seem unimportant.




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