2021: How does GEICO compare with Progressive?

Becky: Did you want to talk about GEICO versus Progressive, too, because I got a lot of questions on that?

Warren Buffett: Progressive has had the best operation in recent years, in terms of matching rate to risk, and I mean, that’s what insurance is all about among other things. But I mean, you have to have the right rate. If you think that 90 year olds and 20 year olds have an equal chance of dying, I mean, you’re going to be out of business very quickly, the life insurance business. And you will get all the 90-year-old risks and the other guy will get the 20-year-old risks.

And the same thing applies in auto insurance. I mean, there’s a huge difference between 16-year-old males, and how they drive, and 40-year-old, married, employed people. So companies that do the best job of actually having the appropriate rate for everyone of their policy holders, is going to do very well, and Progressive has done a very good job on that.

And we’re doing a much better job on that already, but Todd Combs has gone there. And it’s a very interesting business, both Progressive and GEICO were started in the ’30s. I believe I’m right about Progressive on that, and we were started in ’36. We have had the better product for a long, long time, I mean, in terms of cost. And here we are 80, 85 years later, in our case, and we have about 13% or so of the market, whatever it may be, and Progressive as just a slight bit less. So the two of us have 25% of the market, roughly, in this huge market, after 80 something years of having a better product. So it’s a very slow changing, competitive situation, but Progressive has done a very, very good job recently. We’ve done a very, very good job over the years, and we’re doing a good job now, but we have made some very significant improvements.

And if you looked at, you don’t want to look at the quarters too much, but our profitability in the first quarter was good, but we gave back more money under our back arrangement, when the virus broke out, we gave two point eight billion on our give back program that was larger than any company as well. It was the largest, I think, in the country. And GEICO and Progressive are both going to do very well in the future. And actually, Union Pacific and BNSF are going to do well in the future. It’s just, in both cases, we want to do a little bit better than the other guy.

Ajit Jain: Can I just-

Becky: Yeah.

Ajit Jain: … add a little bit? Yeah. There’s no question, Progressive is a machine. They’re very good at what they do, whether it’s underwriting, which Warren talked about, in terms of matching rate to risk, whether it’s handling claims. Having said that, I think GEICO is catching up with Progressive. More than a year ago, about a year ago, Progressive had margins that were almost twice as much as GEICOs, and growth rates that were almost twice as much as GEICOs. If you look at the results, as of now, Progressive is still crushing it, in terms of growth, relative to GEICO, but GEICO has certainly caught up with Progressive in terms of margins, and, hopefully, that gap will be non-existent in the future.

The second point I want to make on the issue of matching rate to risk, GEICO had clearly missed the business, and were late in terms of appreciating the value of telematics. They have woken up to the fact that telematics plays a big role in matching rate to risk. They have a number of initiatives, and, hopefully, they will see the light of day before, not too long, and that’ll allow them to catch up with their competitors, in terms of the issue of matching rate to risk.

Warren Buffett: I will predict that five years from now, State Farm is still the largest auto insurer, but I will predict that five years from now, it’s very likely that the top two will be GEICO and Progressive, and in which order we’ll see/ but both companies are going to do very well, in my opinion. And GEICO’s done well extremely well, but Progressive was better at setting the right rate, and we’re catching up, I think, fairly fast.

Ajit Jain: Yeah, excuse me, Progressive has certainly done better, but when it comes to branding, GEICO is, I think, miles, excuse me, ahead of Progressive. And in terms of managing expenses as well, I think GEICO does a much better job than anyone else in the industry.