Buffett's Tech Blind Spot

Buffett's Tech Blind Spot Other than a stellar bet on Apple stock, Berkshire Hathaway's Warren Buffett hasn't been the best at spotting the newest trends in technology. Alphabet, Amazon.com, and other tech all-stars have never been meaningful positions in Berkshire's stock portfolio, and its subsidiaries are decidedly old economy: energy and utilities, railroads and industrial businesses, a variety of consumer products companies, and insurers. Buffett famously doesn't use email, instead dictating messages to his secretary who operates the machinery for him. That hasn't stopped Buffett from becoming one of the greatest investors in history and one of the world's wealthiest people. But, these days, practically every business is increasingly a tech business, or at least one that uses technology in more and more of its daily operations. That includes Berkshire's Geico subsidiary -- or at least it should. The huge auto insurer has had several weak quarters and appears to be falling farther and farther behind its rival Progressive, Barron's Andrew Bary writes: Until the past few years, Geico had been one of the best businesses inside Berkshire Hathaway and the jewel of its vast insurance operations. Buffett has a soft spot for Geico because it was one of his original—and most successful—investments dating back in 1951, when he was just 21... Geico is coming off a rocky second quarter when it had an underwriting loss of nearly $500 million, while its rival Progressive operated in the black. Geico has had underwriting losses for four consecutive quarters. Like other auto insurers, Geico has been stung by higher claims costs, a result of the surge in the price of used cars, auto parts, labor and an upturn in driving activity since the pandemic. But some of Geico’s wounds are self-inflicted as the auto insurer has been slow to integrate telematics, or the use of real-time driving data, to price auto policies. Progressive and Geico have been the two stars of the auto insurance business for most of the past two decades as they grew rapidly by selling policies directly to consumers, a low-cost method popular with younger drivers who feel they don’t need agents. But Progressive is a leader in telematics, which can help auto insurers to better price insurance policies for customers by predicting the risk of future accidents through such factors as acceleration, braking and time of day—late-night driving tends to be more dangerous. Telematics also helps insurers with regulators unhappy with more controversial factors used to price policies like credit scores. At Berkshire's annual meeting in April, the head of Berkshire’s entire insurance business, Ajit Jain, admitted that Geico was lagging Progressive's growth rate and profit margin. He cited telematics as a reason. Geico also hasn't had a permanent CEO since late 2019. And Progressive has years of real-time driving information in its database that Geico can't recreate overnight. Berkshire Hathaway's B shares are down 7% in 2022, versus a 13% loss for the S&P 500. They're about 25 percentage points behind the index over the past five years. Read the rest of Andrew's report here.