2001: How does GEICO control costs?

AUDIENCE MEMBER: Hi, Mr. Buffett, Mr. Munger. My name’s Dan Sheehan from Oakville, Canada.

Following up on your discussion about GEICO, you’ve often talked about their advantages as a direct seller and investor of float.

My question is, how do you control claim costs versus your competitors, other than through good underwriting?

Some may have advantages in terms of economies of scale or cutting corners you won’t do. And this might allow them to eliminate some of the advantages you’ve gained on the other side of the combined ratio.

And my second question is, you’ve said, “It’s hard to be smarter than your dumbest competitor.” And along that line, what are your thoughts about a recent Wall Street Journal article about a major airline getting into the fractional jet business? Thank you.

WARREN BUFFETT: I don’t worry about the dumbest competitor in a business that’s service. The customer will figure that out over time.

And we have a huge advantage in the fractional ownership business. I mean, we have 265 planes flying around now, and you can get one on four hours’ notice at any one of 5,500 airports. We have planes in Europe for our American customers. We have planes here for our European customers. And nobody’s going to catch us, in my view, in fractional ownership.

And we’ve had some dumb competitors in the past in that business. And, you know, they bleed. And to the extent, you know, we’ve got more blood than they have.