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2016: Why is GEICO suddenly losing to Progressive Direct?
CLIFF GALLANT: Thank you.
In terms of growth in profitability, GEICO really got whupped by Progressive Direct over the last year. In 2015, Progressive Direct’s auto business group grew its policy count by 9.1 percent. GEICO, only 5.4. And in terms of profitability, the combined ratio at Progressive was a 95.1 and GEICO’s was a 98.0.
Is this evidence that Progressive’s investments in technology, like Snapshot, investments that GEICO has spurned, is it making a difference in a time of difficult loss trends? Why is GEICO suddenly losing to Progressive Direct?
WARREN BUFFETT: Yeah, well, I would say this. Over the — over the last — well, I forget what year it was we passed Progressive and what year it was we passed Allstate, but GEICO’s growth rate in the first quarter was not as high as in the past couple first quarters, but it was it was quite satisfactory.
Now the first quarter is, by far, the best quarter for growth. But last year, both frequency — how often people had accidents — and severity — which is the cost per accident; in other words, just how much those accidents cost you — both of those went up quite suddenly and substantially. And Progressive’s figures show that they were hit by that less than Allstate and GEICO and some others.
But I don’t think you’ll see, necessarily, those same trends this year.
It’s an interesting thing. Last year, for the first time in I don’t know how many years, the number of deaths in auto accidents, per 100 million miles, went up.
Now, if you go back to the mid-1930s, there were almost 15 people killed per 100 million miles driven. It got down to just slightly over one — from 15 — to one.
You had almost as many — you had roughly as many — people killed in auto accidents in the mid-1930s, about 30, 32,000 a year, as we had last year — or the year before — when people drove almost 15 times as many miles.
Cars have gotten far, far, far, far safer.
And it’s a good thing, because if we’d had the same rate of deaths from auto accidents as we had in the ’30s, relative to miles driven, we would have had over a half a million people die last year from auto accidents, instead of a figure closer to 40,000.
But last year, for the first time, there was more driving, and I think there was more distracted driving. So you really had this uptick in frequency, and more important, in severity.
GEICO has adjusted its rates. As I mentioned, my own prediction would be that the underwriting margins at GEICO will be better this year than last year, although you never know when catastrophes are coming along. March and April have had a lot of cat activity.
I made a bet a long time ago on — a mental one — on the GEICO model versus the Progressive model. And, as I say, they were significantly ahead of us in volume a few years back. Then we passed them and we passed Allstate and, as I put in the annual report, I hope on my 100th birthday that the GEICO people announce to me that they passed State Farm.
But I have to do my share on that, too, by getting to 100. So we’ll see what happens on that particular one. (Laughs)
CHARLIE MUNGER: Well, I don’t think it’s a tragedy that some competitor got a little better ratio from one period. GEICO’s quadrupled its market share since we bought all of it.
WARREN BUFFETT: Quintupled.
CHARLIE MUNGER: Yeah, quintupled, all right. (Laughter)
I don’t think we should worry about the fact that somebody else had a good quarter.
WARREN BUFFETT: Yeah. (Applause)
I think it’s far more sure that GEICO will pass State Farm someday than that I’ll make it to 100, I’ll put it that way. (Laughs)