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.
Sales & 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.
Its reliance on Japan has a downside: The company is vulnerable to currency fluctuations between the dollar and yen. It also faces increased competition due to deregulation of Japan's insurance industry. However, as in the US, Japanese consumers are seeing more health care costs being shifted onto their shoulders, making Aflac's products more attractive.
Aflac has reported increased revenues over the last five years, including a 14% increase to $25 billion in 2012 due to a 9% increase in sales in Japan (largely from bank channel sales growth). Sales of group products in the US market also increased that year. Net income grew 48% in 2012 due to higher revenues and lower investment losses (the company experienced a profit decline in 2011).
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 2012 the company also launched several new products for the US market, including group hospital indemnity and group critical illness products for employers in the New York State market. To expand its distribution network, the company launched the Aflac Benefits Solutions subsidiary in 2012 to provide dedicated services to brokerage partners.
Aflac paddled, seemingly unperturbed, through the economic recession in its major markets. It is also remaining unruffled by the potential changes in the US health care insurance industry. As it is already familiar with operating in a market with a national health care system, and as it does not pay for any actual health care, it does not expect to see major changes in its products. If anything, the company anticipates a potential increase in demand for its products should the US adopt a more comprehensive major medical health insurance plan.
Members of the founding Amos family together continue to own about 15% of Aflac and serve on the company's management team.