One of my favorite bloggers, Seth Godin, recently posted on his blog about Pitchers and Hitters. His main point was that those who pitch control the game by deciding what pitch is thrown, where, to who. That is why they make more money than any other position in baseball. Hitters by contrast react to what is thrown at them deciding very little.
It’s notable that if you are an elite hitter and have a batting average of .300 your failure rate is 70%. If you are an elite pitcher your E.R.A is under 3 which makes your success rate north of 70%.
As a fellow business owner I always want to pitch. I want to decide on a course of action and take control and responsibility of my business’s destination. Yet when it comes to purchasing insurance I see so many business owners step off the mound and become hitters. They wait until three quarters of the year have ended before they order their loss runs, mull the results post facto, and then hand the random results to three other brokers to go and solicit the marketplace for quotes. The one who comes back with the best quotation wins their business for that year. This essentially lets the insurance carriers choose their brokerage relationship as the pricing they received was mostly a result of their loss runs, and little to do with the actual broker.
By contrast the best CFO’s and business owners are by their very nature pitchers through and through. They understand that the price they pay on insurance is a function of how profitable their account is to the carriers that underwrite them. Insurance pricing is a function of a historical loss ratio between premiums paid and losses paid out. If the carriers have lost money in more than one of the last five years your premiums and ancillary costs rise with it, sometimes significantly.
These folks, pitchers, are proactive. They choose and leverage their brokerage relationships to first and foremost help them quantify and manage their claims, to take action to decrease reserves, and to prevent future claims. They solicit ideas to help them prevent losses from happening in the first place; and know their loss picture quarter to quarter so they can constantly adjust their “pitches” to get outs. That’s how they win, using insurance which is a big part of their expense budget as a significant competitive advantage in their unit cost structure. This is why they are the most richly compensated in the game.
