Jacques,
Wow, long post <g>
I understand what you're saying (correct me if I'm wrong). Some insurance companies run at a 92 combined ratio. some run at a 98, and others run at a 104 combined ratio. The cheapest float would be from a company with a 92 combined ratio. And given equal ability to invest the float the company with a 92 combined ratio makes the most money. Pretty straight forward.
Probably where I'm missing is here: to me low combined ratios are an operational advantage, nothing specific to float. "Low cost float" sound like it's nothing more than efficient business operations.
Where I can see Berkshire having a specific long term advantage operationally is in the supercat insurance. They are big enough to cut deals that nobody else can make, and can jack up the profits considerably because of that. This I guess equates to "low cost float."
In auto insurance the Geico brand has incredible word-of-mouth going for it - from numbers I've seen stronger word of mouth than any major carrier (except maybe USAA which doesn't really count). Geico isn't necessarily the best price in insurance, surprisingly often it's not, but the perception is such. It makes sense (no agent, they must be cheaper) but isn't always the case. I don't expect that the advantage here, unlike Supercats, is sustainable in the long run. Others can and will compete effectively in the direct market. The direct market within the past few years has just become large enough to attract the attention of larger players and strategies are being put into place to address it. Again, not saying that Geico won't make money here, but super-normal profits should be much more difficult in the long run.
FWIW, Shane |
