Warren Buffett — chairman and CEO of global conglomerate Berkshire Hathaway and one of the wealthiest people in the world — hauls in a good deal of revenue from Berkshire-owned auto insurer Geico. But in the long term, Buffett thinks, insurers like Geico are going to be bringing in less money as self-driving cars start to take over.
Appearing on CNBC this morning, Buffett had this to say when asked if autonomous driving would be "an issue" for the auto insurance industry:
"The answer is yes. I think it's a long way off, but there's no question. Anything that makes cars safer is very pro-social, and it's bad for the auto insurance industry. But nevertheless, the auto insurance industry has always worked on making cars safer. I mean, they've led the way on things like seat belts and all that. But if there are no accidents, then no need for insurance. And I think there will be a big reduction in accidents over a longer period of time. And of course there already has — cars have been made way, way safer, but now when you start making the driver safer, that would be a big, big jump, and that will happen some day, and when it happens there will be a lot less auto insurance written."
Buffett said something similar at Berkshire's annual meeting in 2014, but he doesn't touch on why less auto insurance will be written: is it because cars will become so safe that required levels and types of coverage will decrease? Or because automakers will assume liability on drivers' behalves? Or both?
"When it happens there will be a lot less auto insurance written."
Berkshire Hathaway Vice Chairman Charlie Munger, appearing with Buffett this morning, went on to note that "people are gonna want to drive faster than the speed limit, and so forth, and the software's not gonna allow it." Safer driving, safer cars, fewer accidents — good for humanity, bad for the liability business, it turns out.
Munger then pointed out that his company has "experienced technological destruction before," saying that Bill Gates (who was also a part of the interview) had come out with a software-based encyclopedia — presumably referring to Microsoft Encarta — that decimated one of Berkshire's businesses. "We had this wonderful company that made this wonderful encyclopedia that earns $50 million of income every year like clockwork. And Bill gave away a free encyclopedia with every bit of Microsoft software, and away went a large part of our profits from the encyclopedia business forever," he lamented.
Liability is widely seen as one of the biggest barriers to rapid adoption of self-driving technology, because questions still remain about who takes the blame in various scenarios. "It's certainly more than 15 years off before it'll be a meaningful percentage of cars driven," Gates predicted. In the US, regulators have been moving pretty rapidly this year to start the rulemaking process — but even with enthusiasm and full support from stakeholders, it's a process that will likely take several years.