Business

Focus on cheaper premiums pays off for AFLAC

Consumers going after cheaper products do little to help the nation’s deflation woes and usually end up hurting companies in the form of declining sales revenues.

But this is not necessarily the case in the insurance business, where it can actually spur sales growth.

Consumers are becoming more interested in cheaper products and living benefits, in contrast to conventional insurance policies that focus on death benefits and thus feature high premiums, according to Daniel Amos, chairman and chief executive officer of AFLAC Inc., the holding firm for American Family Life Assurance Company of Columbus Inc., based in Georgia.

“We changed our focus on the cheapest possible price,” Amos, 51, said in an interview with The Japan Times. “This change for offering less-expensive products has done very well for us.”

Amos is visiting Japan through Saturday.

Since entering the Japanese market with cancer insurance in 1974, AFLAC Japan, a Japanese arm of the American insurer, has focused on so-called third-sector insurance products, which cover specific fields, including cancer and medical treatment.

The firm now enjoys a share of about 80 percent of the cancer insurance market in terms of policyholders.

“We are an insurance company that predominantly stays in the third sector, specifically covering health insurance products,” Amos said. “That focus allows us to have better products.”

This strategy remains intact under Charles D. Lake II, the new president of the Japanese branch, who took the position Jan. 1., according to Amos.

Although the third sector was opened up to major domestic insurers in January 2001 and competition has intensified since then, the firm’s sales increased steadily.

For the first half of fiscal 2002, the number of policyholders increased 2.8 percent on a year-on-year basis and its sales grew 8.1 percent to 5.82 trillion yen.

The Japanese branch accounts for some 70 percent of sales in the group. The favorable sales partly stem from a new medical insurance that does not cover death benefits and thus keeps premiums low.

The product, launched last February, attracted about 220,000 policyholders in the first half of fiscal 2002.

It is difficult for rival insurers to compete with AFLAC Japan since the firm’s operating costs are on average 15 percent lower than those of its peers, including both Japanese and foreign life insurers operating in Japan, Amos said.

The strong cost performance stems from low personnel costs.

The firm employs a commission-based sales system, instead of hiring its own sales personnel, and has its back office in Chofu, away from the center of Tokyo, Amos said.

Its alliance with Dai-ichi Mutual Life Insurance, the country’s second-largest life insurer, has also expanded AFLAC’s sales channel, he added.

While business in the Japanese market goes well, the firm is not completely free from the weak financial footing of Japanese insurers that are struggling with low investment returns and high benefits to policyholders.

In line with a recent government request, the Life Insurance Association of Japan decided to make an additional contribution of 78 billion yen to a safety-net system to protect policyholders in the event that a life insurer goes under. AFLAC Japan is a member of the association.

Amos criticized the additional contribution to the Life Insurance Policyholders Protection Corp., saying that the burden-sharing is like not punishing a child who does something wrong and, instead, punishing the child’s brother who does has done nothing wrong.

But Amos said that the company cannot help but accept the financial burden-sharing, which is like paying taxes to do business in the lucrative Japanese market.

“We were against it,” Amos said. “We voted against it. We think it is wrong. But we want to do business in Japan.”

Coronavirus banner