USA Today provided some insight on Warren Buffet’s comments last week, after he delivered his letter to shareholders of Berkshire Hathaway. We learned that Buffett was not satisfied with the stock return for the year. He also chided CEO’s of major corporations for failing to be aggressive.
When he delivers his yearly “address”, I am always interested to see any portion of his discussion regarding Geico, which is part of the Berkshire Hathaway holdings.
This is the pertinent part from his letter:
” The insurance business. Berkshire’s insurance operations “shot the lights out last year,” Buffett wrote. The business generated $73 billion of “free money” for the company to invest. “This is truly having your cake and eating it too,” he wrote. “When I count my blessing, I count GEICO twice.”
What Buffet is saying is that Geico is helping them buy other businesses like Heinz Ketchup. I have no issue with profits for business. I understand that businesses create jobs and that’s what keeps the wheels turning. It’s the same at our law firm.
What we can really gather from Warren Buffett is the application of why insurance companies collect premiums… to make a profit. It’s not to pass on profits by charging less to their insureds. This is contrary to silly tort reformer arguments for caps.
In Texas, all the talk was that they needed a malpractice cap of 250K. By doing so, doctors would be charged less for premiums. Now, almost 10 years later, Texas doctors are not getting any reductions (SEE HERE) but the caps remain. All that means is that those responsible for causing injury are passing the expense on to everyone else.
One final thought on the excitement caused by insurance profits. In Virginia, we still have a punishment damage (punitive) cap of $350,000. What that means is that when profits are in the billions, what kind of punishment does that really amount to. Punitive damages are meant to protect the citizens that are effected by the conduct. Unfortunately, businesses are protected instead.
At least Buffett is honest about why. One of my hopes is to have a judge force him to come to Virginia for a deposition to explain the way that Geico handles their claims evaluations in Virginia. I believe that they are needlessly asserting frivolous defenses and clogging the Court system. Maybe his deposition someday soon. I can hope… can’t I?
If you think I am being tough on Geico; then yes… I am. They make me shake my head. No wonder their new mascot is a pig. It seems apropo to me.
This Pic o’ day “note” reminded me of how I believe that insurance companies accept responsibility.