In my previous article I shared the notes I took from Bob Batt’s talk at Bob Miles’ Berkshire System Summit. Now here are the notes I jotted down from Don Wurster of National Indemnity’s presentation and Q&A. It was a little difficult to hear Wurster well during the session so I might have missed a good bit of information.
Background Information of Don Wurster and National Indemnity：
National Indemnity was founded in 1940. The company provides commercial insurance products. It offers commercial auto insurance products, which provide coverage for business auto, commercial trucks and truckers, passenger transport, and specialty operations; garage insurance that provide coverage for dealers, and service and repair shops; motor truck cargo insurance that provides coverage for loading and unloading, refrigeration breakdown, and earned freight operations; and prize and indemnification and special events insurance products.
National Indemnity also provides general liability insurance, which provides coverage for construction, manufacturing and distribution, transportation, miscellaneous, and stores and rental operations, as well as installation, service, and repair operations. It offers its products through retail and contracted general agents in the United States.
Don Wurster serves as the President of National Indemnity Company and Berkshire Hathaway Life Insurance Company of Nebraska. According to a WSJ study, since 1973 Don Wurster was mentioned 35 times in 17 annual letters to shareholders by Warren Buffett (Trades, Portfolio).
How do you define the Berkshire System?
It’s a unique culture. The Chairman spends most of his time reading. It’s small headquarters. Managers are left alone. There’s a lot of responsibilities at Berkshire.
National Indemnity is the oldest surviving separate business of Berkshire Hathaway. But GEICO’s Tony Nicely is the one who really exemplifies the Berkshire culture. He will talk to everyone in the company. Everyone feels a personal touch with Tony. He listens to customer calls. He knows every aspect of the organization.
At the end of the day, Berkshire managers are motivated to not let down the shareholders.
Sticking to circle of competency within Berkshire Hathaway:
At National Indemnity, you are not encouraged to write policies which you don’t understand the risks involved. You should know what your circle of competency is and if National Indemnity employees venture outside of their circle of competency, that’s when problems happen. Sometimes National Indemnity will try to experiment with things and make best judgement and recalibrate. But at the end of the day, National Indemnity won’t venture into other businesses simply because the market they are in is too tough or there’s too much competition. Within Berkshire, you are not forced to do things which you don’t understand.
How Warren Buffett (Trades, Portfolio) differentiates himself within Berkshire:
Warren Buffett (Trades, Portfolio) may not be the smartest people within Berkshire Hathaway. Warren differentiates himself in wisdom, experiences, temperament, and not letting ego get in the way. He is by far the wisest person at Berkshire. He’s also willing to accept adversity. When he’s wrong he admits he’s wrong. It’s ok to make mistakes at Berkshire as long as you learn from your mistakes.
What skillset does Ajit Jain have but Warren Buffett (Trades, Portfolio) doesn’t have:
Ajit’s ability to try new opportunities and to take advantages of them. And if things don’t work out Ajit can move on to other things. Ajit is more adventurous than Warren Buffett (Trades, Portfolio) and very good at trying new things more actively. He also has more energy to go out there and go executing on things.
But Warren Buffett (Trades, Portfolio) knows that he’s not the best or interested in day to day management of the subsidiaries. And he is wise enough know it’s best find somebody with the skillset to do that.
National Indemnity hiring policy:
When hiring, Wurster ask his manager to presume that if the person they are trying to hire will stay for the next 10 years. If they look at the past 10 years and they’ll see there were a lot different things that have happened and the next 10 years will be equally uncertain. The question they should ask is will they be feeling good about the person they are about to hire 10 years from now and feel good about it? That should be the motivation when hiring someone.
Use of decision trees at National Indemnity:
National Indemnity uses decision trees and try to quantify the uncertainties or risks in an intelligent way. National Indemnity uses decision tools to evaluate individual clients and policies. That’s part of the culture. You have to always think about the probabilities. A good book on decision book Wurster recommend is The Undoing Project by Michael Lewis.
