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.
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.
Despite its US roots, Aflac makes more than 70% 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.
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. 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 2014, the company had agreements to sell its products with 371 banks, approximately 90% of the total number of banks in Japan. Banks contributed 21.5% of Aflac Japan's new annualized premium sales in 2014.
Aflac's extensive distribution network includes more than 74,000 licensed sales associates and brokers in US. In 2014, the company recruited more than 900 new sales agencies. Independent corporate and individual agencies contributed more than 45% of new annualized premium sales that year, compared with 44% in 2013 and 35% in 2012.
The company's advertising costs in 2014 were $229 million, down from $240 million in 2013.
The company saw a steady growth in revenues over the last few years. However, revenue declined 5% in both 2013 and 2014 (when Aflac reported $22.7 billion revenue). The decline was driven by reductions in net premiums (primarily for supplemental health insurance), derivatives and other gains and sales, and redemptions due to the weaker yen/dollar exchange rate. Aflac Japan's overall sales declined in 2014, primarily as a result of declines in sales of the first sector WAYS product. (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 fell 7% to $2.9 billion in 2014 as a result of the company's lower revenue and also due to an increase in interest expenses.
Operating cash flow has followed the firm's revenue trends since 2009. In 2014 operating cash flow decreased by $4 billion to $6.5 billion, due to a decline in cash generated by increase in policy liabilities and changes in income tax liabilities.
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 a 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 which boosted the number of postal outlets offering Aflac’s cancer products from 1,000 to 10,000; Japan Post intends to further expand that figure to 20,000 outlets by early 2016.
The company anticipates a potential increase in demand for its products as the US adopts a more comprehensive major medical health insurance plan. Its sales target and focus in 2015 is 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. In 2014 Aflac Japan introduced New Cancer DAYS, which provides enhanced cancer coverage including outpatient treatments and multiple cancer occurrence benefits.
In 2015 Aflac launched a new critical illness plan, Critical Care Protection, which provides a range of coverage options as well as new benefits for heart conditions.