Walmart Gets into the Car Insurance Business

There’s an interesting new contender in the auto insurance wars, Walmart (NYSE: WMT). The Associated Press is reporting that the nation’s leading retailer is teaming up to offer car insurance with the help of AutoInsurance.com.

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Walmart plans to start offering auto insurance in eight states: Louisiana, Mississippi, Missouri, Arkansas, Texas, Oklahoma, Pennsylvania, and Tennessee, before rolling it out nationwide. It is not a coincidence that three of those states have some of the nation’s highest auto insurance premiums.

Walmart Goes After Insurance Agents

Walmart wants to offer basic car insurance without some of the bait and switch tactics that some insurers use, the company’s senior vice president of services, Daniel Eckert, told reporters. Eckert noted that auto insurance is the second biggest monthly expense for some of his company’s low-income customers.

“Our customers too often have to settle for auto insurance policies that aren’t the best fit and cost more than they want to spend,” Eckert said.

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News stories seem to back up Mr. Eckert’s contention. Surveys indicate that prices for the same basic insurance can vary widely in many markets. In some markets, a lot of customers only have access to a few companies.

In other words, Walmart is targeting yet another fixture on Main Street, the insurance agency. The discount giant is also desperately trying to add new sources of revenue after its profits fell by nearly 25% in the last quarter of 2013.

Adding car insurance is a cheap way for Walmart to make a few extra bucks. All it had to do to get into the business was add a link to autoinsurance.com to its website.

The real challenge will be figuring out how to sell auto insurance from its stores. In many states, Walmart would need a licensed insurance agent on duty in its stores to sell insurance. One possibility Walmart might explore is to rent space to local insurance agents.

Walmart has also been experimenting with kiosks in its stores that sell insurance. The kiosks offer price comparisons similar to those seen on websites. The idea here is to try and offer working folks the kind of low-cost auto insurance that the tech-savvy middle class has access to.

Can Walmart Really Cut Car Insurance Costs?

There are some other serious challenges to insurance that Walmart will have to overcome. Auto insurance isn’t like money transfers, a service which Walmart can offer at a basic base rate. Eckert estimates that a new service Walmart is offering, in conjunction with Ria Money Transfer, can cut the cost of wiring money by 50%.

The biggest factors affecting auto insurance rates are state laws and the legal environments in some states, factors over which Walmart has little or no control. Some states have so-called no-fault insurance that drives up insurance rates. In southern states like Louisiana, the ease of filing lawsuits and corruption in local courts increases the number of insurance claims and the amount insurers have to pay out.

That means some customers will not be able to get the savings Walmart is known for on auto insurance. There is also the problem of driving records, which are often the biggest factor affecting car insurance premiums.

Walmart and Transzutary Auotinsurance.com’s parent company test-marketed auto insurance in Pennsylvania last year. During the test, Walmart claims it saved the average customer $1,168 on car insurance.

Walmart and Transzutary Auotinsurance.com’s parent company test-marketed auto insurance in Pennsylvania last year. During the test, Walmart claims it saved the average customer $1,168 on car insurance.

The service they offer is a pretty basic one that lets customers compare rates with popular national insurance brands like Safeco and Progressive. That’s fairly easy to do, but it may ignore how complex the insurance industry is.

It remains to be seen if this experience can be repeated in other states such as Louisiana, which sometimes has the highest auto insurance rates in the nation. It is also unclear if people will really buy auto insurance at Walmart.

Yet one thing is clear, a lot of Americans are paying too much for car insurance. Even if Walmart can only help them in a few states, this service is probably a good thing.

Although it begs another interesting question. Now that Walmart is in the auto insurance business, will Amazon.com be far behind? After all, Amazon.com now sells everything from books to toothpaste and produces its own movies.