Just months before he passed away at age 99, Berkshire Hathaway’s ever-sharp vice chairman Charlie Munger shared some valuable insights with the audience.
During the Daily Journal’s 2023 shareholder meeting, Munger responded to a question from CNBC’s Becky Quick about the trend of large companies, including Meta, opting for self-insurance against various liabilities. I quickly inquired about the potential systemic problems this trend could cause and sought Munger’s thoughts.
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Known for his straightforward approach, Munger shared his personal philosophy on self-insurance. He said, “In my own life, I’m a big self-insurer, just like Warren. It’s ridiculous to take out fire insurance on my houses because I can so easily rebuild a house that would burn down. So why should I want to go through the trouble of messing around with the claims process and all kinds of other things?”
He emphasized the practicality of self-insurance for those who can afford it, noting: “If you have insurance, you have to insure yourself against things you can’t afford. But if you can afford to ride out the bumps taking, you know, an unusual expense that comes your way doesn’t hurt you that much. Why would you want to mess with an insurance company? If your house burned down, I’d just write a check and rebuild it.”
Munger argued that all intelligent people are self-confident. He then clarified, perhaps not “all of them,” but said, “All intelligent people should do it my way,” highlighting the waste and fraud often associated with traditional insurance. “There should be a lot more self-insurance in life. There’s a lot of waste you pay when you buy insurance for someone else’s fraud, and there’s a lot of fraud in life.” He explained that if you can afford to take the risk yourself, you should, but there is a risk involved.
It may be easy for a Munger to rebuild a house, considering his net worth at the time of interview was $2.6 billion. However, for the average person, this would be an extreme hardship. There is also liability if something happens on your property that causes someone else to be injured.
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Berkshire Hathaway, the conglomerate where Munger was vice chairman, has significant interests in the insurance industry. The company owns several major insurance subsidiaries, including GEICO, Berkshire Hathaway Reinsurance Group and Berkshire Hathaway Primary Group. These insurance businesses are a key part of Berkshire Hathaway’s financial success, making Munger’s advice particularly noteworthy given the company’s deep involvement in the industry.
Despite his role at Berkshire Hathaway, a company that invested deeply in the insurance industry, Munger maintained his candid stance. “I’d rather tell it like it is and in a way that helps Berkshire. I’m not going to tell it differently than I think it really is just because it’s better for Berkshire. Even if it’s bad for Berkshire, I want to tell you: If you can afford to insure yourself, insure yourself.”
Munger’s advice comes as a growing number of American homeowners are choosing to go without insurance, not because they can afford to insure themselves like Munger, but because of rising costs. A recent survey from the Insurance Information Institute found that 12% of Americans no longer have home insurance, up from 5% in 2019. This increase in uninsured homeowners is the highest the industry has ever seen, driven by the rising cost of coverage.
Self-insurance may offer savings and simplicity, but it carries significant risks. For many, this may not be a viable option without a thorough understanding of their financial situation. Consulting a financial advisor can help assess whether self-insurance is feasible and advisable.
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This article Charlie Munger Said He and Warren Buffett Are Always Confident – You Should Too If You Can Afford It: ‘Don’t Pay for the Other Man’s Fraud’ originally appeared on Benzinga.com
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