2015: How do GEICO's competitors occasionally offer lower rates?

Becky Quick: This question caught my attention not because I think it’s a complaint, but I think it’s an actual question about the actuarial models that you use at GEICO. It comes from Stan Zion (PH). And he says, "My wife and I are stockholders of Berkshire Hathaway. I’m 78 and she’s 74. We have a long-time accident-free driving record. Yet, when we applied to GEICO with our stockholder discount, GEICO was unable to beat our rates for comparable coverage with other fine companies. Why?"

Warren Buffett: Well, it’s the reason that we probably can beat the rate maybe 40 percent of the time with people who contact us, and 60 percent of the time we can’t. No company is going to be the lowest in all cases. And we have our own underwriting criteria that involve many variables, one of which is age, but it wouldn’t be a dominant one at that age. But we have many, many variables. And we make our calculations, and very good competitors like State Farm and Allstate, USAA, and so on, they have somewhat different underwriting weightings, and sometimes they come in below us.

But I don’t think any company, of size, will be the lowest more often than GEICO. We give out quotes on the telephone to many, many thousands of people every week. I get the figures every week, and I get the number of quotes, and I get the number of policies sold. And I can tell you the percentages are very substantial that we sell. And we’re not selling them if we’re charging them more than the people before them. So it — different people have different weightings for different variables. And the couple you referred to sound like they should get a very good rate from somebody, but they apparently got a better rate from somebody else other than us. And that’s going to happen, perhaps 60 percent of the time, and 40 percent of the time we’re going to get the business.

And since we’re only 11 percent of the whole market now, it means we’ve got a lot of policyholders yet to gather. It’s an interesting question when you’re looking at how to evaluate drivers. You know, we know that 16-year-old boys are about as bad as they get; 16-year-old girls are a better class. Does that mean they’re better drivers? Not necessarily. It may mean they don’t have the same tendency to show off. It may mean they don’t drive as many miles. It may mean a whole lot of things. So we ask a lot of questions, and other people ask different questions, and we will come up with different rates. But it’s definitely worth 15 minutes to call GEICO. (Laughter) Charlie?

Charlie Munger: Well, I would say besides, when you get into the older people’s group and you find you’re not deteriorating as fast as most of your contemporaries, you may be paying an unfair price for the insurance, but it’s a good tradeoff. (Laughter)

Warren Buffett: Gary. I haven’t thought of it that way before. (Laughter)