2012: How will GEICO maintain its competitive advantage in pricing?

GARY RANSOM: Telematics is the latest pricing technology in the auto insurance business whereby you put a little device in your car and you can either get a discount or some other determination of your pricing based on actual driving behavior.

What is GEICO doing to keep pace with that change, and are there any other initiatives that GEICO has in place to maintain its competitive advantages in pricing?

WARREN BUFFETT: Yeah. Progressive, as you know, has probably been the leader in what you just described. And we have not done that at GEICO, but it — if we think there becomes a superior way to evaluate the likelihood of anybody having an accident, you know, I think we have 50 — I think you have to answer 51 questions — which is more than I would like, if you go to our website to get a quote.

And every one of those is designed to evaluate your propensity to get in an accident.

Obviously, if you could you could ride around in a car with somebody for six months, you might learn quite a bit about the propensity, particularly if they didn’t know you were there, you know, like with your 16-year-old son.

But I do not see that as being a major change, but if it becomes something that gives you better predictive value about the propensity of any given individual to have an accident, we will take it on, you know, and we will try to get rid of the things that don’t really tell us that much all the time.

But we’re always looking for more things that will tell us if we look around at these — the people in this room, one by one, you know — what tells us their likelihood of having an accident in the next year.

We know that youth is, for example. I mean, there is no question that a 16-year-old male is much more likely to have an accident than some guy like me that drives 3500 miles a year and is not trying to impress a girl when he does it, you know. (Laughter)

So, you know, that one is pretty obvious. Some of these others — some things are very good predictors that you wouldn’t necessarily expect to be. Credit scores are, but — and they’re not allowed in all places — but they will tell you a lot about driving habits.

We’ll keep looking at anything, but I do not see any — I don’t see in this new experiment — anything that threatens GEICO in any way. GEICO, in the first quarter of the year — now the first quarter is our best quarter — but we added a very significant number of policies.

I forget what the exact number was, but February turns out to be the best month for some reason. We were up there getting pretty close to 300,000 policies.

So our marketing is working extremely well, and our risk selection is working extremely well, and our retention is working well. So GEICO is quite a machine.

That’s one of the — that’s the business that we carry, as I’ve mentioned in the past — I think we carry it at a billion dollars — roughly a billion dollars over its tangible book value. You know, it’s worth a whole lot more than that.

I mean, based on the price we paid, that figure would come up these days to, you know, certainly something more like $15 billion more than carrying value.

And we wouldn’t sell it there. We wouldn’t sell it at all, but that would not tempt us in the least.

Charlie?

CHARLIE MUNGER: Nothing to add.