2015: Has climate change affected Berkshire like it has affected other insurers?
ANDREW ROSS SORKIN: Warren, you have said that global warming has not increased Berkshire’s payouts for weather-related events. Yet, other insurers, including Travelers, have cited climate change as a risk factor that they use.
Are Berkshire’s models different and, if so, how?
WARREN BUFFETT: Yeah. No. I’ve seen the — of course, the SEC requires you put in all these risk factors, and the lawyers will tell you to put in, you know, everything possibly you can think of, you know, that you’ll develop Alzheimer’s or whatever it may be.
They just want you to have a laundry list so that it’s all been covered in case of later litigation or something of the sort.
So people do put in weather risk, and maybe they put it in because they’ve got some model that shows it. But, you know, we price our business — basically, we price it every year.
It’s not like a life insurance company. A life insurance company you make a contract that — so much a thousand. And if you buy whole life insurance, you’ve set a price for — if you’re 20, you may have set a price for 60 or 70 years in the future. But that is not the property casualty insurance business, which we’re in.
We set it one year at a time. And I see nothing that tells me that on a yearly basis that global warming is something that should cause me to change my prices a lot, or even a small amount.
That doesn’t mean that it isn’t a threat to humanity or — you know, and terribly important. It just means that if I’m going to sell a one-year insurance policy, and I’m going to sell it on a $1 billion plant, I may care enormously about the fire protection, and other various other kinds of protection, within that plant.
I may care about what’s going on adjacent to that plant, and all kinds of things, but I am not thinking about global warming. It does not change the situation, in a material way, in any one-year period of time, in my judgment.
And, you know, it — if I was writing a 50-year wind storm policy in Florida, I would think very hard about what global warming might do in that case to the incidence and the intensity of potential hurricanes.
But I do not think it has any material effect on the likelihood of — or the intensity — of a hurricane in Florida or Louisiana or Texas or — next year.
So, it is not a — it’s not something I would put in the 10-K as a threat.
Charlie?
CHARLIE MUNGER: I don’t think it’s totally clear what the effects of global warming will be on extremes of weather. I think there’s a lot of guesswork in that field, and a lot of people like howling about calamities that are by no means sure.
WARREN BUFFETT: Yeah. Do you think — would it change your one-year prediction as to what the rate should be?
CHARLIE MUNGER: No.
WARREN BUFFETT: No. It wouldn’t change mine either, so I don’t really understand why they put that in there.
CHARLIE MUNGER: A lot of people get very invested. It’s like a crazy ideology.
It’s not that global warming isn’t happening. It’s just that you can get so excited about it you make all kinds of crazy extrapolations that aren’t necessarily correct.
WARREN BUFFETT: Yeah. Look at it this way. Would you change the rate for tomorrow on insurance because — from the rate today — for global warming? I doubt it very much.
Now, you know, would you change it for 50 years? Might very well.
But I think that one year is much closer to one day than it is to 50 years, in terms of focusing on that factor.
So, I do not want our underwriters to sit there thinking a lot about — in terms of writing a risk or the price at which to write that risk — I do not want them thinking about global warming. I want them thinking about whether there’s a moral risk involved and who owns the property.
I mean, that can be very significant. There used to be one fellow called “Marvin the Torch,” that if you insured “Marvin the Torch,” global warming didn’t really make much difference. His building was going to go. (Laughter)
Marvin had a marvelous way of looking at it, though. He said, “I don’t burn buildings; I create vacant lots.” (Laughter)