Could Wal-Mart soon be selling insurance products? It's not such a far-fetched possibility, based on last week's announcement by the Bentonville, Ark.-based retail giant that it will open 1,000 Wal-Mart MoneyCenters -– covering one-fourth of its stores -– by the end of 2008.

In an official statement, the company said: "Wal-Mart MoneyCenters will assist customers who are outside mainstream banking with convenient, nationwide access to low-cost money services, including check cashing, money orders, bill payment and money transfers." The company also noted, "Wal-Mart will continue to pilot and test many different products and services in an effort to provide the financial services customers need at various stages of their lives."
The unveiling of this initiative was the latest development in an ongoing saga that has preoccupied the banking industry, especially smaller community banks. Over the past 18 months or so Wal-Mart had been trying to obtain approval to launch an industrial loan corporation (ILC), which would help eliminate third-party transaction costs it currently incurs from processing credit, debit card and electronic check transactions in its stores. Banks made it clear they (probably correctly) viewed this as a first step by Wal-Mart towards offering a complete array of financial services, and they exerted enough pressure that earlier this year Wal-Mart withdrew its application.
But Wal-Mart clearly (and understandably) is determined to provide financial services to its existing and potential customers. Its "plan B," unveiled last week, seems to be even more ambitious than the ILC proposal. The retailer has recognized a need/opportunity to provide underbanked and unbanked people with financial services, and is determined to find ways to serve this segment of consumers.
So, what does this have to do with insurance? Well, obviously, Wal-Mart has the resources -– and, let's be fair, the ingenuity and determination –- to efficiently and securely support a broad portfolio of financial products and services. So, I'm sure it's only a matter of time before the company is also in the insurance and investments business. It remains to be seen whether this might involve selling low-cost auto, renters or homeowners insurance, or even take the form of new models such as micro-insurance, which is gaining momentum in other emerging markets. But it seems inevitable that insurers, especially personal lines carriers, must now understand Wal-Mart as an eventual competitor, and gear their strategies and systems to meet the challenge.
One more thing: Meeting that challenge shouldn't necessarily involve lobbying and pushing for legislation intended to keep Wal-Mart out of the insurance business. An industry that is seeking regulatory reform -– and that generally has applauded the inclusion of insurance in the Treasury Department's announcement this week that financial markets regulation must be revamped –- shouldn't seek to have it both ways. Successful competition with Wal-Mart (and other non-traditional players) will be all about technology proficiency in areas such as customer insight, consistent reliable service, security and aggressive pricing.

Posted by Kathy Burger

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