Would you buy insurance from a duck? Aflac counts on it! To soften the financial stresses during periods of disability or illness, Aflac sells supplemental health and life insurance policies, including coverage for accidents, intensive care, dental, vision, and disability, as well as for specific conditions (primarily cancer) and general life policies. It is a leading supplier of supplemental insurance in the US and is an industry leader in Japan's life and cancer insurance markets. Aflac, which is marketed through -- and is an acronym for -- American Family Life Assurance Company, sells policies that pay cash benefits for hospital confinement, emergency treatment, and medical appliances.
Despite its US roots, Aflac makes 75% of its insurance sales in Japan, where its policies fill in gaps not covered by the national health insurance system. Aflac has a presence in all 50 US states, and in Puerto Rico and the Virgin Islands.
Aflac acts as a management company, overseeing the operations of its subsidiaries by providing management services and making capital available. Its principal business is supplemental health and life insurance, which is marketed and administered through its subsidiary, American Family Life Assurance Company of Columbus (Aflac), which operates in the US, and as a branch in Japan (Aflac Japan). Aflac individual and group insurance products help provide protection to more than 50 million people around the world.
Sales and Marketing
In Japan, Aflac primarily sells through an independent corporate agency system, in which corporations form subsidiaries to sell Aflac insurance to their employees. In the face of Japan's deregulated life insurance industry, the company has also had a marketing alliance with Dai-ichi Life Insurance, one of the country's largest life insurers, since 2000. Changes in regulations now allow the company to sell through banks and post offices, and it has also opened retail shops where consumers can purchase directly from sales associates.
In the US, Aflac sells mainly at the workplace, with employers deducting premiums from paychecks, through sales associates of its Continental American Insurance Company subsidiary (known as Aflac Group Insurance). Building on its strong brand recognition -- due, largely, to the company's popular TV ads featuring a valiant spokes-duck -- Aflac has invested in its US business by adding more sales associates and expanding its distribution to include independent insurance brokers.
By the end of 2013, the company had agreements to sell its products with 372 banks, approximately 90% of the total number of banks in Japan Banks contributed 31.3% of Aflac Japan's new annualized premium sales in 2013.
At the end of 2013, Aflac's extensive distribution network included more than 76,300 licensed sales associates and brokers in US.
The company has seen a steady growth in revenues over the last few years. In 2013 Aflac's revenue decreased by 5% due to decline in net premiums (principally supplemental health insurance), net investment income, and sales, and redemptions (due to the weaker yen/dollar exchange rate). Aflac Japan's overall sales declined in 2013 primarily the result of two factors: the repricing of WAYS and other first sector life products, reflecting lower assumed interest rates; and improved investment returns for equities and fixed-income investments, which caused customers at banks to shift their focus from WAYS-type insurance products to investment trusts. (WAYS is a life insurance policy that allows policyholders to convert a portion of their life insurance to medical, nursing care, or fixed annuity benefits at a predetermined age).
Aflac's net income continued its uptrend in 2013, growing by 10% due to the decrease in benefits and claims expenses, and acquisition and operating expenses, attributed to the decline in amortization of deferred policy acquisition costs, insurance commissions, and insurance expenses.
Operating cash flow has followed revenue trends since 2009. In 2013 operating cash flow decreased by $4 billion to $11 billion due to decline in cash generated by increase in policy liabilities and cash used in realized investment gains.
The company is focusing on improving and expanding its distribution network and product development processes, and on strengthening its low-cost model. As part of its US sales strategy, Aflac continues to focus on growing and enhancing the effectiveness of its US sales team.
Aflac has formed partnership with Daido Life Insurance Company, under which Daido will sell Aflac’s cancer insurance policies to members of Hojinkai, a non-profit organization associated with 900,000 small and mid-sized member businesses across Japan.
Aflac Japan and Japan Post Holdings signed a new alliance agreement in 2013 boosting he number of postal outlets offering Aflac’s cancer products had from 1,000 to 1,500 that year and to 3,000 by March 2014.
The company anticipates a potential increase in demand for its products as the US adopts a more comprehensive major medical health insurance plan. For 2013, its target was to increase cancer and medical policy sales in the range of flat to up 5%. Its sales target and focus in 2014 was centered around the sale of Aflac Japan's third sector products, including cancer, and medical.
Aflac has created new life insurance products for the Japanese market. In addition to standard life insurance, it has also introduced child endowment products that pay out part of the benefit when the child enters high school, and then functions like an annuity for four years during college.