Aflac obviously needs no introduction. Say what you want about the company and its iconic water fowl, but they practically reinvented insurance marketing.
But just to be thorough:
They’re not only the top carrier in the country, they’re the big dog (or bird) in the two largest insurance markets in the world.
And as big as they are here? They do most of their business in the land of the rising sun: a whopping 25 percent of it. In fact, they insure one out of every four Japanese citizens.
The Fortune 500 company touted 2011 year-end assets of more than $117 billion while ringing up annual revenues of more than $22.2 billion.
The carrier employs about 4,300, in addition to more than 70,000 independent sales agents.
So when the call came through that President and Chief Operating Officer Paul Amos— the company’s next generation of leadership—was on the line, well, that’s a call you take. Or at least I did.
Let’s talk about Japan. How are things right now over there?
We just came back from our mini-fab — financial analyst briefing — where we invite all of the analysts both on the buy side and sell side to travel with us to Japan and then give an all-day investor conference that includes all of Aflac’s top management. For the first half of the year, Aflac sales in Japan were up more than 50 percent.
We’re working with new product lines and the Japanese consumer seems as favorable (or more favorable) toward the Aflac brand and products than ever. Keep in mind: Every citizen of Japan has government-sponsored major medical. Over time the Japanese government has put in larger and larger co-pays to the point where it went from none to 10 percent, 20 percent, and now we’re at a 30 percent co-pay. So the need for Japanese people to have our type of products [is greater than ever].
We feel so strong about our position going into national health care [in the States]. Our experience in Japan has led us to insure 25 percent of the population there. So we are beyond a household name in Japan. Now, as we think about the environment here today, there are an endless amount of plans that cover each individual company because of high customization of major medical provided to every individual business. One thing that will happen with PPACA is that you’ll see some standardization of some of the medical plans with the platinum, gold, silver and bronze plans. As a result, for our industry it should make it easier to take our type of indemnity products and match them up to the needs that go along with the major medical policies being sold in the marketplace either at the business or on the exchanges to those individuals. And so with the growing cost of health care rising and the propensity for us to do well in the national health care market, we feel strongly positioned.
So you see PPACA not necessarily hindering your business—and actually a potential boon?
If we execute well there is a real opportunity for us. Part of that opportunity rests on what happens in America socially. What I mean by that is when we saw everyone in the United States end up with Medicare, the conversation shifted away from senior medical care to “What Medicare supplement policy do I have over and above to cover the things I need?” What we believe could happen long-term is that Americans begin to talk less about major medical, which is the primary conversation today, and begin to focus more on what voluntary insurance they have over and above their major medical plan to cover the things they need beyond what major medical covers. Therefore I believe Aflac could go from being the secondary conversation to the primary conversation. And so I believe PPACA represents a potential opportunity for Aflac. Like anything, though, we have to execute well, manage our communications, speak to both policyholders and consumers in a proper way and make sure we’re set up to do well in that type of environment, which will cause change.
That speaks to the consumers themselves. How different is your average Japanese consumer versus your average U.S. consumer? Is it an entirely different set of expectations?
Both Japanese and Americans are very alike in many senses. They both live in progressed economies. They both want to take care of their families. They both have two of the longest life expectancies on earth, meaning that the incidents of health care are more likely to occur for them as it would in some countries with lower life expectancies. They’re concerned about health care and health care costs. It’s also two of the most modern health care systems on earth, meaning the quality of care – and so the cost of care – is extremely high.
So, as a result, the need for our products is great. How they purchase those policies is somewhat different since deregulation and privacy are growing areas of concern in Japan. Japanese consumers went from purchasing the vast majority of their insurance at the worksite to now buying it through a variety of channels. Much of our insurance today is sold direct and even our largest channel now has become the bank channel. While banks in the United States don’t represent the comprehensive form of financial advisement they do in many foreign countries -- in Japan many citizens depend greatly on their bank for a variety of financial needs. So we supply our products through both national and regional banks. As a result we’ve seen significant growth in sales and that’s one of the things that’s been a big boon for us in the Japanese marketplace.
So with PPACA you could almost say what you see in the Japanese market is perhaps a glimpse of one version of our own future here…
It’s hard to draw direct parallels. The reality is the Japanese government is the major medical provider. So as long as we have major medical companies, that will be a distinct difference in how the markets are regulated. And the Japanese, by their nature, are very big savers. They tend to be very conscious about the need for insurance. The average American doesn’t think they need more insurance, but when you sit down and consult with them and explain to them what it is our products offer, they see the need and they want to buy it. Japanese tend to seek out insurance more commonly than Americans do but that just might be the fact that they’ve had national health care for longer. It’s hard to tell. I can’t see into the future but I can tell you that there is opportunity in PPACA for Aflac.
Do you see any particular roadblocks? Anything you’re actually worried about?
I think the biggest hurdle is one that’s faced by all Americans and that’s that it’s a 2,000-page law with significant implications on how people buy insurance and what they need to do. And I think everyone is looking for how to simplify this law down to what, at its core, people are going to need to do. For us, we’re glad to have a solution in place and I think the biggest risk going forward is that it just becomes muddled and difficult. So at this point I would say there is no direct great risk I see other than confusion about what people need to do.
Your company has clearly made a huge effort in the past couple of years to reposition yourself with regard to brokers. How is your company becoming more broker centric on a day-to-day basis?
Sure. By historical context you’re correct. We started out by working with the smallest businesses in America and hiring a direct sales force that would go out and work in the payroll market and sell through payroll deduction to those consumers. As we’ve decided as a company strategically to not only offer our products to America’s smallest businesses but to all of America’s businesses, we realized we need to work with brokers in the marketplace. Fueling that in many ways has been the PPACA decision [with required medical loss ratios going to 80 percent and 85 percent], we know brokers are looking for ways to offset any revenue loss incurred as a result of major medical paying lower commissions. They’re looking for ways to offer additional products to clients as well as offering more robust benefit packages. We felt like it was a natural conversation with us to work with an additional distribution system via brokers, whose natural inclination is to consult with a client and offer them the best available. So we believe we can partner as the best available with them.
One of the major differences between Aflac then and Aflac today is how we handle distribution. For years we would only distribute our product – even with a broker – through our traditional agents. Today we function in many cases also as a carrier: supplying the product to the broker without necessarily offering the requirement of distribution. I believe that change is one of the key things that opened up Aflac product to the broker marketplace.
And how has that been received so far from where you sit?
I’d say it’s going very well. There are brokers in the marketplace today who’ve had historical battles with Aflac for one reason or another to there are people who aren’t behind us 100 percent.
On the flip side there are a variety of brokers — small, regional and large — who are working with Aflac and finding that our products, our value-added services and the way we service a client with their customer experience (including our claims process) is providing them the best possible carrier to work with. So we believe this is a relationship business and that we have to go out and win the trust of the brokerage community one by one.
What is your message to those more skeptical brokers?
That Aflac is different. That the Aflac they know as and individual product company sold through only a field force is vastly different today. Now as not only an individual product company and a leading provider of voluntary insurance and guaranteed renewable insurance in America but also having now a wing of our business through group insurance that’s industry leading with some of the highest customization levels as well as the Aflac brand behind what we believe is industry leading accident and critical illness and other product lines on the group side. Add to that product set a different way of working with brokers and embracing the broker community and setting up our systems and compensation to align with what brokers desire and we believe we’re meeting the needs of almost every business in America today and that we can help you know drive business for brokers by offering a product that businesses are already demanding in the Aflac brand.
So as far as you’re concerned, there’s not only a way for your own in-house sales force and brokers to survive together, but actually, in fact, thrive?
There is a way for them to thrive. I don’t believe in every case they’ll thrive together. Another example of that is the recent opening of Aflac Benefits Solutions out of Atlanta. We recognize the top 50 brokerage firms in America plus the top 11 enrollment firms, wanted business handled in a different manner. In fact, not all of them even wanted it done the same way. In almost all of those cases it becomes a highly customized solution for that individual firm. So we’ve set up an organization that’s responsible for working with each of those particular brokerage houses and enrollment firms to supply them with whatever they need from Aflac to help reap the greatest success between Aflac and their firm. So it’s a highly customized solution.
One of your biggest competitors would be Allstate. What do you need to do going forward to keep ahead of them and stay on top?
You know I think you know the reality is that not whether it is existing competitors that are doing well or new competitors and we’re seeing a large number of major medical companies and disability companies stepping into our market space that this environment is going to become more fast paced than ever. The need to innovate from a product standpoint as well as to deliver from, a customer experience standpoint will be higher than ever. As a result we continue to not only research what’s going on in the marketplace among consumers but also about the needs of business decision-makers and the businesses themselves. We’re working with brokerage firms to find out what their needs are and if we can create a solution set that meets the needs of all three of those constituencies, you know the actual employees, the businesses themselves as well as the brokers then we’re gonna be staying ahead in the marketplace. The vast majority of that means refining good products and putting those products in their hands and they’re gonna make a difference to consumers. In some cases it means adding additional product lines that Aflac may not offer today but maybe interested in offering in the future to meet the needs of each of those three.
Talk to me about your customer service.
We pride ourselves on that we have a claims experience we believe is second to none in the industry. We pay our average claim in four days. We really focus on making sure that as we make a promise to a consumer that we’re gonna be there in their time of need. That when that time of need comes, we recognize they need money from us and they need it now. And as a result, we pay those claims in an extremely expedient manner. Additionally, across the board we investigate, understand and work toward creating the best possible customer experience for each of our clients. And we go out of our way to make sure we follow up with them, work with them and that we deliver on what we say we’re going to do.
What’s your mission is for the company?
Our vision is to be the leading provider of voluntary insurance in the United States. Now we’re already the leading provider of voluntary insurance in the United States and as a result we want to stay ahead. So we continue to look broader and realize what the potential for Aflac is and today only 6 percent of businesses in America offer our products. Our goal is to significantly raise that and make sure every American has access to our products so our goal is to make sure that we can get our products within reach of every consumer so they can purchase when they want, how they want.
How does that compare to Japan as far as the penetration rate?
Astronomically different. We insure 95 percent of the companies on the Tokyo stock exchange. And 25 percent of the population in Japan. We only insure 6 percent of businesses in America so the upside for us in America is gigantic.