Charlie Munger Said He And Warren Buffett Always Self-Insure — You Should Too If You Can Afford It: 'Don't Pay For The Other Fellow's Fraud'

Just months before his passing at the ripe old age of 99, Charlie Munger, the ever-sharp vice chairman of Berkshire Hathaway, shared some valuable insights with the public. 

During the 2023 Daily Journal 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. Quickly inquired about the potential systemic issues 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 and so is Warren. It's ridiculous to carry fire insurance on my houses because I can so easily rebuild a house that would burn down. So why would I want to bother fooling around with the claims process and all kinds of things?"

He emphasized the practicality of self-insuring for those who can afford it, noting, "If insurance, you should insure against things you can't afford to pay for yourself. But if you can afford to take the bumps, you know, some unusual expense coming along doesn't really hurt you that much. Why would you want to fool around with some insurance company? If your house burned down, I would just write a check and rebuild it." 

Munger argued that all intelligent people are self-insured. He then clarified, maybe not "all," but said, "All intelligent people should do it my way," highlighting the waste and fraud often associated with traditional insurance. "There should be way more self-insurance in life. There's a lot of waste you're paying when you buy insurance for the other fellow's frauds, 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 home, considering his net worth was $2.6 billion during the interview. However, for the average person, this would be an extreme hardship. There is also the liability factor involved if something were to occur on your property, causing injury to another. 

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Berkshire Hathaway, the conglomerate where Munger served as vice chairman, has substantial 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 operations have been a core part of Berkshire Hathaway's financial success, making Munger's advice particularly notable given the company's deep involvement in the sector.

Despite his role at Berkshire Hathaway, a company deeply invested in the insurance industry, Munger maintained his candid stance. "I'd rather tell it the way it is and tell it 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 though it's bad for Berkshire, I want to tell you, if you can afford to self-insure, self-insure."

Munger's advice comes when a growing number of American homeowners opt to go without insurance, not because they can afford to self-insure like Munger, but due to rising costs. A recent study by the Insurance Information Institute found that 12% of Americans no longer have home insurance, up from 5% in 2019. This surge in uninsured homeowners is the highest the industry has seen, driven by the rising coverage costs.

Self-insurance may offer savings and simplicity, but it carries significant risks. For many, it might 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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