Billionaire Warren Buffett Is Scared of Driverless Cars

Every year, thousands of investors flock to Omaha to hear the wisdom of Warren Buffett and Charlie Munger. For as long as six hours, with only one break for lunch, the two business legends take questions from investors, the press, and analysts. 

Appropriately for a shareholder meeting, the focus is the business of Berkshire Hathaway  (NYSE: BRK-A  )   (NYSE: BRK-B  )  but it's not the only topic they discuss. This year, Buffett discussed usage-based insurance and driverless cars in response to a question from financial journalist Andrew Ross Sorkin of The New York Times.

Following are my notes on Sorkin's question, along with responses from Buffett and Munger.

Andrew Ross Sorkin: Could you explain how you think about usage-based car insurance pricing, and how it could affect the industry in the next decade? How does it affect the moat of Geico? Would you consider selling Geico? Also, what effect will self-driving cars have on Geico?

Warren: The answer to "would we sell" is no.

Usage-based pricing has been favorable among firms that have tried it. There's no question that knowing how customers drive is a valuable insight into how to price the premium. Insurance is about evaluating the propensity of loss when calculating the premium. And, it's very easy to understand in life insurance that a 90-year-old is more likely to die than a 20 year old, despite Charlie's situation. That's obvious. Females live longer, that's obvious. So there's various variables and you try to set the proper price in insurance. If you lived in a state where the population was 1 rather than 100 million, there'd be a lower chance of an accident. Through studying usage using varying methods, they're using variables to try to get information about the likelihood of that driver being in an accident.

We [at Geico] look at a lot of variables. We have a good system, and it's proven worthy so far. I feel very, very good about Geico and its management's ability to measure risk. I think there are plenty of others who are good at it, but none better in auto insurance.

Self-driving cars are a real threat to insurers if it's successful. It can happen, but I don't know how to forecast it. It certainly could happen, but we're not for one second thinking about selling Geico.

Charlie: Some of these things happen much more slowly than you might think. I went to a program 30 years ago talking about color movies on demand would take over and it happened, but it wasn't right around the corner like they said.

Warren: We may be wrong, but we'll be wrong together [with Charlie]. Geico will be doing a lot more business five and 10 years from now. But 30 years from now... I won't be around to know (laughs).

Warren Buffett's biggest fear is about to come true
Yes, you read that correctly. Warren Buffett just called this emerging technology a "real threat" to his biggest cash-cow. While Buffett shakes in his billionaire-boots, only a few investors are embracing this new market which experts say will be worth over $2 trillion. It won't be long before everyone on Wall Street wises up, that's why The Motley Fool is releasing this timely investor alert. Click here to learn more about what's keeping Buffett up at night and the one public company we're calling the "brains behind" the technology.


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2952575, ~/Articles/ArticleHandler.aspx, 9/23/2014 8:27:13 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 17,055.87 -116.81 -0.68%
S&P 500 1,982.77 -11.52 -0.58%
NASD 4,508.69 -19.00 -0.42%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/23/2014 4:00 PM
BRK-A $208445.00 Down -455.00 -0.22%
Berkshire Hathaway… CAPS Rating: ****
BRK-B $138.78 Down -0.48 -0.34%
Berkshire Hathaway CAPS Rating: *****

Advertisement