Agents who sell auto insurance have successfully competed with online portals for years, but never before have they gone up against AutoInsurance.com and Wal-Mart Stores Inc.
The partnership, announced last week, gives consumers the opportunity to compare prices and buy auto insurance from leading national carriers, including Progressive, Esurance, Safeco and The General Automobile Insurance Services, online or by calling AutoInsurance.com’s toll-free number. Wal-Mart is the exclusive retailer and marketing partner for the service in eight states, including Arkansas, and it plans to expand to the rest of the country.
Wal-Mart has more than 150 million customers in U.S. stores each week and an increasing number who shop from the company’s website, walmart.com, giving AutoInsurance.com a large market.
The arrangement is similar to the 80-year partnership Sears, Roebuck & Co. had with Allstate Corp., the second-largest personal policy insurer in the United States. Prior to the Internet, Allstate operated an office in just about every Sears store in the country.
A lot has changed in the 21 years since Allstate spun off from Sears. By 2017, 60 percent of all U.S. retail sales will involve the Internet in some way, either as a direct e-commerce transaction or as part of a shopper’s research on a laptop or mobile device, according to a report by Forrester Research Inc.
The world’s largest retailer also recently started its own money-transfer business, Walmart-2-Walmart, which competes with giants MoneyGram and Western Union.
“Part of this is technology and the evolution of how insurance is sold,” said Robert Hartwig, president and economist with the Insurance Information Institute in New York. “And part of it is Wal-Mart’s strategy to provide an ever-broadening array of financial services to its core demographic,” which is low- to middle-income consumers.
But at what cost, those in the industry wonder. Even traditional insurers like No. 1 State Farm and others have an online presence but prefer for much of the interaction to be face-to-face.
“Probably for the Y generation who live off their phones and iPads, that might appeal to them in the early stages of life,” said Robert McFarland, vice president of marketing for BancorpSouth. “Until they have an issue.”
Purchasing a policy is more than just purchasing coverage, those in the business said. Agents are also selling relationships. Rather than having to call a toll-free number or utilize an online system for filing claims and making contact with an insurance company representative, customers with more traditional policies have a name and face they can rely on for help.
As Wal-Mart’s partner-ship with AutoInsurance.com was presented last week, there will be no go-to place in stores: just printed information about the service.
But even if Wal-Mart staffed its insurance providers as it does its beauty salons or eye-care centers, the ability for consumers to develop a lasting relationship is something insurers question.
Greg Hatcher, whose Hatcher Agency markets itself for “outrageous service,” doesn’t see how the model will be beneficial for consumers.
“I can’t see an agent at Wal-Mart being there regularly or being there three years from now,” Hatcher said. “Some people, they just want the lowest price. What’s the service behind it? That matters.”
State Farm, which has 190 agents across Arkansas, is the largest auto insurer in the country and state, a distinction it has had for about 60 years. State Farm spokesman Gary Stephenson estimated the company covers 25 percent of insured drivers within the state’s borders.
Customer service has helped State Farm maintain that distinction, Stephenson said.
“Our agents know their communities, the cities they live in and the people there,” Stephenson said. “That’s difficult to accomplish with a few clicks of your mouse online.”
As with everything Wal-Mart does, volume will be the key. Insurers often break even on car insurance policies. Auto insurance is among the biggest risks taken by companies, and as one industry expert points out, the profit on an auto policy is often $100 or less.
“If you had 1,000 policies, that’s a lot of people and a lot of risk,” Hatcher said. “You’d make $100,000, but spend it on salaries and other expenses. You’d have to have 5,000policies or more to make it work only providing personal auto coverage.”
Insurers say they offer products beyond one-size fits-all auto coverage and provide services that online insurers don’t, meaning they’ll likely service different sorts of customers.
“I don’t really see that as being a threat to our business here,” McFarland of Bancor-South said. “Our personalized department, we write the whole thing, not just auto. Our customers are usually tied to commercial clients, and they demand service. They have unusual needs sometimes or complicated issues that a boxed, canned product is not going to address.”
Hartwig said his Insurance Information Institute recommends that consumers explore all their options when shopping for auto insurance. Some of the insurance carriers offered under AutoInsurance.com offer personal customer service , too.
Business, Pages 75 on 05/04/2014