This is a quote from a 2007 student visit to Omaha:
Question 2: GEICO is one of Berkshire’s crown jewels. You know the auto insurance industry cold, and you have been extolling the virtues of the GEICO and Progressive business models for decades. Why haven’t you ever taken a stake in Progressive?
Essentially, "thumb-sucking". That is what his partner Charlie Munger calls it when they identify opportunities in their circle of competence and fail to pull the trigger. Buying one didn’t preclude buying the other. He immensely admires Peter Lewis, the longtime CEO of Progressive. He asks the question of CEO’s – if you had a silver bullet and could kill one of your competitors, who would it be? For GEICO, Buffett would his silver bullet, and all the rest of his ammo, shooting Progressive. Years ago [presumably in the early 1980’s], they were briefly looking at putting the two companies together. He joked that each CEO, Jack Byrne of GEICO and Peter Lewis, would each come to him and report that negotiations were moving along, only that each was under the impression that he was gong to be the CEO of the combined company.
Buffett told the story of his initial involvement with GEICO as a Columbia student. It was obvious to him in 1951 that GEICO would do very well for a very long time. Everyone hates buying car insurance, but they are forced to, and a good chunk of them will go with the low-cost provider.
Buffett mentioned that GEICO now has a slightly better position than Progressive [due to a lower cost structure, I believe], but that the two of them will be duking it out and both will gain share for a long time. When the internet hit, Progressive actually had an edge for awhile. Because they had no direct distribution up to that point, they were quicker to seize on the internet as their direct distribution channel. GEICO had been so successful with its direct mail and phone strategy that those institutional forces vested in the old systems prevented it from shifting to the internet nearly as quickly as it should have. Buffett eventually had to lock them in a room and tell them they couldn’t come out until they had a viable internet strategy.