With GEICO Insurance one of Berkshire Hathaway’s biggest assets and moneymakers, the impact of autonomous vehicles on insurance rates will play a big role on future profitability in the auto insurance sector.
Clearly, Warren Buffett is realistic that a world with safer cars will mean declining rates.
While noting that replacement parts of cars are far more expensive than years ago, ultimately Buffett sees a decline in rates due to fewer collisions.
“…A safer car is going to bring lower insurance rates,” Buffett said while appearing on CNBC’s Squawk Box the Monday after Berkshire’s annual meeting. “There’s one some– there’s– modest offset to that in that, in terms of collision activity– the damage is done to a car by in terms of a bumper or a side rearview mirror something. Costs far more now, it’s a much more complex product. So the damage per accident, not human damage, but physical damage to the car, that will probably go up substantially. But the number of accidents won’t– you won’t see widespread adoption unless they’re safer. And we want a safer car. So it’s net, it will be bad for the auto insurance industry over time if autonomous cars become a big part of the fleet.”
Buffett also noted that the exact timeframe that autonomous vehicles will have a big impact on rates is hard to know, as there will still be a lot of nonautonomous vehicles on the road for years to come.
“Well, it– we don’t know, I mean, what it’ll be. And you’ve got 260 million cars on the road. Let’s just say that 10% of the people took up– autonomous cars in a year. Now you’re talking about– a million eight outta the 18 million. And– there’s– a big life cycle to it and all that. But what does best for the consumer and is safer over time really will prevail– over time,” Buffett said.
Currently, GEICO insures more than 24 million vehicles in the United States.
© 2018 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.