2022: How is GEICO responding to Progressive?

BECKY QUICK: This question’s for Ajit and Greg. It comes from Ben Nall (PH), who’s a shareholder of 30 years. He’s a Nebraska native, and he says he’ll be attending the meeting here today.

“BNSF and GEICO appear to be losing ground to their two primary competitors, Union Pacific and Progressive.

“Over the past several years UP’s operating ratio has been about 400 basis points better than BNSF’s.

“And Progressive has grown faster while maintaining a lower combined ratio than GEICO. On an operating basis, UP’s [Union Pacific] precision scheduled railroading and Progressive’s telematics appear to have jumped ahead of the Berkshire businesses.”

He wants to know what Greg and Ajit are doing to address those business challenges.

AJIT JAIN: OK. Thank you, Becky.

There’s no question that the personal automobile insurance business is a very competitive business.

Having said that, both GEICO and Progressive are two very successful competitors in this segment. Each one of them have their plusses and minuses.

But having said that, there’s no question that more recently, Progressive has done a much better job than GEICO, as you point out, both in terms of margins and in terms of growth rate.

There are a number of causes for that, but I think the biggest culprit as far as Geico is concerned, and again, you rightly pointed out, is telematics.

Progressive has been on the telematics bandwagon for, I don’t know, more than 10 years, probably closer to 20 years.

GEICO, until recently, wasn’t involved in telematics. And it’s been only the last two years that they’ve made a very serious effort, in terms of using telematics for segmentation and for trying to match rate and risk.

It’s a long journey. But the journey has started, and the initial results are promising.

It’ll take a while, but my hope and expectation is that hopefully in the next year or two, Geico will be in a position to catch up with Progressive, in terms of telematics. And hopefully that’ll then translate into both growth rate and margins.

WARREN BUFFETT: Charlie, you got anything? (Applause)

16. State Farm’s success refutes what they teach in business schools

WARREN BUFFETT: It’s very interesting. I mean, the auto insurance industry is a fascinating one to study, in that the largest auto insurance company now — and we’re talking 2022 — and, you know, Henry Ford — I mean, it was 1903, you know, or something when — when cars really got started.

And it wasn’t too many years after that that he was turning out two million cars a year. Imagine that. You know, one guy, two million cars a year is a lot of cars.

So, car insurance became very important after hundreds of years of when people thought about insurance, it was ships at sea and fire, where they had protective societies.

And insurance is a product that’s been around a long time. But auto insurance has been pretty much the same thing since Leo Goodwin started GEICO in 1936.

And we came along with a good idea, and lots of big companies and all that.

But the largest auto insurance company in the United States was started over in Illinois by a guy that didn’t know anything about insurance, particularly.

And it’s a mutual company. It’s not supposed to succeed in capitalism. I mean, you know, if you go to business school, they teach you that only because you have incentives and compensation, and all kinds of things, can a company succeed.

Well, nobody’s really gotten rich off State Farm. They’re just out there —

And they are the largest insurance company. While Leo Goodwin started 80-some years ago, and he probably wanted to get rich. And probably at Progressive, you know, people wanted to get rich. And at Travelers and Aetna — and you can name off dozens and dozens of companies.

And who wins? You know, a mutual company.

In terms of present size, they still are the largest company. They have — if you leave out Berkshire — they’ve got the largest net worth, by far. I think they’ve got 140 billion or something like that of net worth. You know, and —

Progressive had a very, very, very smart guy running it for a very long period of time. They got very smart people running it now.

But they have a net worth that’s 1/6 that of what some people over in Illinois that nobody knows the name of (laughs) have after years. And they’ve had the time to sell the same product, and they advertise like crazy.

We spend $2 billion a year telling people the same thing we’ve been telling them for 70 or 80 years, you know.

The policy doesn’t change. But when we get all through, State Farm’s still doing more business than anybody. And it shouldn’t exist under capitalism, you know.

If you went there with a plan to start a State Farm today and have it compete with Progressive, you know, who would put up the capital? (Laughs)

I mean, a mutual company that you’re not going to get the profits from? It doesn’t make any sense at all, except they’ve got 140 billion or something like that of net worth.

And Progressive, I don’t know what their net worth is, but it must be somewhere around 20-or-so billion, and I haven’t looked for a long time. Their net worth in the first —

Incidentally, I mean, they are very, very, very disciplined in underwriting. And of course, on the investment side, their net worth dropped in the first quarter, because they own a lot of bonds.

And they say, well — probably everybody in the insurance business would say — that well, we own bonds because that’s what people do. (Laughs)

And here’s half the business where you do what people do and the other times — the other half — the businesses, you spend all kinds of time trying to analyze in every county and every single way you can segregate and properly rate business and all of that.

And, you know, basically [former Progressive chairman] Peter Lewis sat in my office 40 years — yeah, 40 years ago — and he’s smart as hell. And, you know, this guy was clearly going to be a major competitor of Berkshire’s. And he knew insurance backwards and forwards and very bright and everything.

But he just ignored the investment side, and that was as important as (laughs) the underwriting side.

And it is interesting how organizations function and have — what I would say are, to some extent — blind spots.

And of course, Charlie and I know we’ve got all kinds of blind spots ourselves.

And so, we have to be kind of careful of criticizing other people for having them. (Laughs) It is —

The auto insurance business ought to be studied in business school, because it essentially refutes so many of the things they’re presently teaching. So that’s my suggestion today to business schools. OK. (Laughs)

And thanks, Ajit. You couldn’t — Ajit is responsible for adding more value to Berkshire than the total net worth of Progressive. That’s not to knock Progressive, I’m just saying one guy. (Applause)

17. “We haven’t ever timed anything”