Berkshire Hathaway 2018 Annual Meeting Audience Question # 23

Berkshire’s insurance businesses are, and will continue to, experiment

Warren Buffett:

OK. Gary.

Gary Ransom:

My question is on small commercial, and specifically, direct small commercial.

You seem to have some websites that enable buyers to purchase small commercial insurance directly; biBERK is one of them.

It’s a very competitive, fragmented market. But what is your strategy for that market? And then, can you ultimately GEICO-ize the small commercial market?

Warren Buffett:

Well, we’ll find out. I mean, it’s a very good question because that’s exactly the question we ask ourselves.

And we have this incredible company at GEICO, which has gone direct in the personal auto field, and was, you know, first started it in 1936.

And there’s no question in my mind that over a lot of years… and maybe not so many years… something like small commercial… anything that takes cost out of the system, you know, makes it easier for the customer, is going to work over time, if you’ve got a system that was based on something that had more layers of agency costs and that sort of thing.

So we are experimenting, and we’ll continue to experiment, on something like small commercial, workers’ comp, whatever it may be. We’ll try and figure out ways to take cost out of the system, offer the customer an equivalent product or better at lesser price, and we’ll find out what can be done and what can’t be done.

And we’re not the only ones doing it, as you know. But we are not going… we’ve got some managers that are going to be quite, I’m sure, enterprising on that. And we back them. And we expect some to fail and some… and if a few succeed… we’ll have some very good businesses.

And the world is going in that direction. So… you could expect us to try and go with it.

Charlie?

Charlie Munger:

Well, if it were easy, I think it would’ve happened more fast…

Warren Buffett:

Yeah…

Charlie Munger:

… than it has.

Warren Buffett:

It will happen as we go along. I mean, it wasn’t easy in auto, I mean, when you think about it.

Charlie Munger:

No, it wasn’t.

Warren Buffett:

No. I mean, it was a system with all kinds of extra costs that go back to the turn of the 19th century into the 20th. I mean, it was built on fire insurance and strong general agencies. And that slopped over into auto when the auto came along in 1903 from Ford or whenever. And… so it grew within a system that really wasn’t very efficient compared to what was available.

But it took State Farm initially to go to a direct, or a captive agency system. And then it took USAA, and then later, GEICO, and then later, Progressive, to go to direct systems that are even more efficient and consumer-friendly.

And the same thing is going to happen, to some degree, in all kinds of industries, and certainly small commercial… somebody will…

Charlie Munger:

It could happen, but it will be slow.

Warren Buffett:

It takes an amazingly long time. I mean, it… but you know, the battle doesn’t always go to the strong and the race to the swift. But that’s the way to bet, you know, as they say. So…

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