Tesla vs. GEICO? Warren Buffett & Ajit Jain Talks Self-Driving Cars and Insurance | Berkshire 2024
[Transcript]
BECKY QUICK: This question’s for Warren and Ajit. It’s from Jeff Oyster (PH). As a Berkshire and Tesla shareholder, I would like to hear your thoughts on the potential financial effects to GEICO, assuming Elon Musk delivers on his fully autonomous driving goal.
On Tesla’s most recent earnings call, Elon said, if you’ve got, at scale, a statistically significant amount of data that shows conclusively that the autonomous car has, let’s say, half the accident rate of a human-driven car, I think that’s difficult to ignore. Assuming Elon succeeds in reducing accidents by 50% versus human drivers, wouldn’t auto insurance rates fall to reflect the reduced underwriting risks, thereby adversely impacting GEICO’s revenues and float and perhaps margins, too?
WARREN BUFFETT: Well, yeah. Let’s just take the extreme example. Let’s say there are only going to be three accidents in the United States next year for some crazy reason. Anything that reduces accidents is going to reduce costs. But that’s been harder to do than people have expected before.
Obviously, if it really happens, the figures will show it, and our data will show it, and the prices will come down. There have been a lot of people talk about doing that in the past. General Motors, for instance, used to be very big in the insurance business. And when Uber first started, they used some firm, which now, I think, Ajit will confirm is close to bankruptcy now, aren’t they? Is that true?
AJIT JAIN: Yep. Yeah.
WARREN BUFFETT: Yeah. Insurance always looks easier than it is, and it’s so much fun because you get the money at the start, you know, and then you find out whether you’ve done something stupid later on. It’s a very tempting business when somebody hands you money and you hand them a little piece of paper.
But really knowing whether you’re—if accidents get reduced 50%, it’s going to be good for society and bad for insurance companies’ volume. But good for society is what we’re looking for. You might find it interesting: the number of people killed per 100 million passenger miles driven. I think, when I was young, it was like 15, but even post-World War 2, it only fell to around seven.
Ralph Nader probably has done more for the American consumer than just about anybody in history because that seven or six has now come down to under two. And I don’t think it would have come down that way without him. There have been some fluke figures during the pandemic, which are quite interesting. People didn’t drive as much, but when they did, they drove more dangerously. Isn’t that right, Ajit?
AJIT JAIN: Yeah.
WARREN BUFFETT: So, regarding Tesla and their claim that their technology reduces accidents, that is certainly provable. But what also needs to be factored in is the repair cost of each accident, which has skyrocketed.
If you multiply the number of accidents by the cost of each, I’m not sure the total number has come down as much as Tesla would like us to believe. Tesla has been toying with the idea of writing insurance directly or indirectly. So far, it hasn’t been much of a success. Time will tell. Automation just shifts a lot of the expense from the operator to the equipment provider.
Source: https://buffett.cnbc.com/2024-berkshire-hathaway-annual-meeting/
[YAPSS Takeaway]
As accidents decrease, insurance prices will naturally drop. This benefits society but could hurt the profitability of insurance companies. However, even if there are fewer accidents, the cost of repairing high-tech cars like Tesla is much higher, which could offset the benefits of fewer claims.