Buffett Shouldn't Worry About Self-Driving Teslas

At last weekend’s Berkshire Hathaway Inc. annual meeting, one shareholder asked Warren Buffett how his auto insurer Geico might fare in the event that autonomous-driving technology succeeds in slashing the number of accidents, as Tesla Inc.’s Elon Musk suggested it would on an earnings call last month. “If accidents get reduced 50%, it’s going to be good for society and it’s going to be bad for insurance companies’ volume,” Buffett said. Musk shot back on X to recommend that Buffett should buy a stake in Tesla.

That was funny and thought-provoking. In an age of tremendous uncertainty for the insurance industry, I certainly agree that investors should hedge their bets with small exposures to potentially disruptive technologies. But with climate change, inflation and runaway litigation all wreaking havoc, I’m dubious that “too few accidents” is the tail risk that should most concern them going forward.

In general, it’s obviously true that cars have been getting safer and that serious accidents have been declining as a proportion of total fleet size. Seatbelts, antilock brakes and drunk-driving crackdowns have all had an impact, and advanced driver assistance technology — or even full autonomy — would clearly have the potential to bring about the next step-change improvement in the rates of severe accidents.

Yet there’s no way that the fleet would be completely replaced overnight by more advanced vehicles. Fallible humans would continue to bump into robotaxis; early versions of the technology have hardly been error-free; and meaningful improvements at the national level would probably be realized over decades, rather than months or years.

Moreover, auto insurers’ growth will continue to depend on other factors above and beyond vehicle tech, including the numbers of vehicles on the road; the number of miles they log (which is expected to keep growing); and the demand for coverage against weather-related damage from, for instance, severe hail, strong winds and flooding, which all may become more frequent in the age of climate change. At the same time, policyholders and insurers are also wrestling with a trend of more aggressive litigation which could keep the demand high for umbrella coverage from people concerned about getting sued and losing homes or other assets over a bad accident. And as Berkshire’s insurance chief Ajit Jain pointed out over the weekend, the cost of fixing ever-more technologically advanced automobiles has “skyrocketed.”