How Technology Will Affect Big Insurance Companies

August 7. 2018. 6 mins read

We’re all familiar with how insurance works because we are all forced by law to purchase insurance for various assets that we don’t own. Depending on how risky you are, depends on how much you pay each month in the form of “premiums”. Those premiums then go into a bank account, a giant bank account, where everyone else who pays premiums also sends their money to be stored. What you end up with is a massive pile of cash called a “float” that insurance companies can then invest. When it comes time to pay a claim, easy enough to sell some investments and pay the claim. That’s the foundation of Warren Buffet’s admiration of the insurance industry, and it’s why his company, Berkshire Hathaway, had over $100 billion in float last year:

Insurance Companies: Berkshire Hathaway's Float
Berkshire Hathaway’s Insurance Float – Credit: Motley Fool

Of course, that’s how things used to work. Today, technology is transforming the insurance industry in ways we wouldn’t have imagined. Warren Buffet himself has talked about how autonomous driving will dramatically affect the auto industry. Why? Because when all cars drive perfectly using AI algorithms, there are no wrecks. The cost of insuring a self-driving car will plummet, and all those “premiums” the insurance companies used to create these massive “floats” will dwindle. If you’re holding an insurance company in your portfolio, this ought to concern y

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