Berkshire Hathaway’s Geico playing catch-up in auto insurance telematics

Berkshire Hathaway’s auto insurance unit  Geico has fallen behind the curve on telematics to drive the underperformance vis-à-vis rival Progressive and must be reversed in the “next year or two,” the company’s deputy chairman for insurance Ajit Jain (pictured) told the Berkshire Hathaway annual meeting.

“More recently Progressive has done a much better job,” Jain told the shareholder gathering. “I think the biggest culprit, at least as far as Geico is concerned, is telematics.”

Geico may be upwards of ten to twenty years behind Progressive in taking the dive into telematics, Jain admitted. “ Geico until recently wasn’t involved in telematics and only the last two years made a very serious effort in terms of using telematics for segmentation and to match rate and risk.”

“It’s a long journey, but the journey has started and the initial results are promising,” Jain said. “It will take a while, but my hope and expectation is that hopefully in the next year or two Geico will be in a position to catch up with Progressive in terms of telematics and hopefully that will then translate into both growth rate and margin.”

In his own comments, Berkshire Hathaway founder and chair Warren Buffett appeared to play down the underperformance of Geico versus Progressive with suggestion the industry follows an altered business logic.

To Buffett’s eye, any industry in which a mutual insurance company, namely State farm, can hold on to the leader position against a full slate of for-profit ventures appears to “essentially refute” standard business logic.

“A mutual insurance company! It shouldn't exist under capitalism,” Buffett said. “The auto insurance business ought to be studied in business school because it essentially refutes so many of the things they are presently teaching.”

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