1932 Wynnton Road
AFLAC insures more than 40 million people in the United States and Japan with a variety of supplemental insurance products. Our mission is to provide the best supplemental insurance value in the marketplace. Although AFLAC is the leading provider of individual insurance at the worksite in the United States and the largest foreign insurance company in Japan, we continue to look for even more ways to widen our reach into both markets. This effort is AFLAC's way of improving a business that most observers would say doesn't need improving.
We believe the way to maintain our leadership in the supplemental insurance market is to fix it, even if it isn't broken.
Established in April 1973 as the holding company for a specialized insurance subsidiary, AFLAC Incorporated now insures more than 40 million people worldwide. The company's chief subsidiaries in Columbus, Georgia, and Japan have developed a number of unique marketing techniques to sell a product that they introduced more than 40 years ago: supplementary cancer expense insurance. The company has been one of the fastest-growing companies in the health insurance industry and is a leader in supplemental insurance sold at workplaces in the United States. AFLAC was founded in 1955 with about $300,000 in capital. The company now has assets in excess of $37 billion.
1958: Finding a Niche in the Insurance Industry
In 1955 a young lawyer named John B. Amos moved to Columbus, Georgia, and with his two brothers founded the American Family Life Assurance Company of Columbus, Georgia. After struggling for three years selling life, health, and accident insurance door-to-door in Georgia and Alabama, Amos decided that AFLAC would do better if it could find a specific market niche. In 1958 he developed a cancer insurance policy based on the polio policies of previous decades, and AFLAC's 150 licensed agents sold 5,810 cancer care policies in the first year.
AFLAC's cancer care policy was intended to cover the expenses not covered by comprehensive health insurance. John Amos's research reckoned that most comprehensive policies covered only about 70 percent of the costs of cancer treatment. The early policies were designed to cover up to 50 percent of the average cost of cancer treatment, with the extra coverage to help protect against such expenses as travel and loss of income. The increase of cancer incidence and the high cost of its treatment made the policies popular. By the end of 1959, AFLAC was writing $900,000 in premiums and had begun to operate in Florida.
The company continually looked for new ways to market its policies. In 1964 it began making presentations to groups rather than to individuals and developed the 'cluster-selling' technique, which was very successful. Agents first approached a company or organization for permission to make a presentation to its employees or members. The agent made a group sales pitch with the implicit endorsement of the company. This method allowed agents to reach more prospects at a given time, and the cooperation of the organization was a selling point. In addition, many companies implemented a payroll deduction plan for the premiums, reducing AFLAC's processing costs. Cluster-selling boosted the company's premiums to $7 million by 1967.
Cluster-selling proved a very effective way to sell cancer insurance. AFLAC built up an aggressive, well-paid sales force that would typically sell to five percent of a group's members immediately. The salesman would return later and usually sign up the rest. Years later John Amos explained the technique's success: 'Sooner or later, there's going to be a cancer in the group. If he's insured, he's satisfied, and the word gets around to the rest of them. And if he's not insured, he's sorry, and we get the rest of them.'
During the late 1960s AFLAC greatly increased the number of states in which it did business. An agreement with the Globe Life Insurance Company of Chicago, which was licensed to sell insurance throughout the country, resulted in AFLAC's policies being sold nationwide; Globe sold the policies and AFLAC reinsured them, so that when AFLAC wanted to be licensed itself, it could show state insurance commissioners that its policies were already available in their state and that the company was already making good on claims. Between 1969 and 1971 AFLAC increased the number of states in which it operated from 11 to 42.
In 1973 American Family Corporation was formed as a holding company for AFLAC. A year later the company's headquarters moved from a modest collection of houses into the new 18-story American Family Center. In June 1974, American Family's shares were listed on the New York Stock Exchange.
The 1970s: Breaking into the Japanese Insurance Market
During the 1970s a number of companies, seeing AFLAC's success, introduced cancer policies of their own. By the end of the decade there were about 300 insurers selling cancer coverage. AFLAC, however, handily controlled the market, having sold about 60 percent of all cancer policies. The company, in fact, claimed to be the world's fastest-growing insurance company. Between 1972 and 1977 annual premium income rose 294 percent to $205 million, while earnings jumped to $25 million--a 181 percent increase.
Much of AFLAC's success in the mid-1970s was the result of its entry into the rapidly expanding Japanese market. When Chairman John Amos visited Japan in 1970, he was convinced that it would be an excellent market for his cancer care policies. The Japanese industry, however, was well entrenched, and foreign companies found it virtually impossible to get licensing. Amos was not deterred and quickly formulated a plan to gain acceptance for his company's product in Japan.
When AFLAC was licensed by Japan's Ministry of Finance to sell insurance in 1974, it was only the second U.S. company to be allowed to do so in more than two decades. Part of AFLAC's success came from the fact that it offered a product that was not yet available from Japanese insurers, at a time when cancer awareness was expanding. Another factor was AFLAC's decision to employ retired workers as its agents, a move that impressed both former coworkers--potential policyholders--and the Ministry of Finance. In addition, Amos's choice of company officers was truly inspired: it included many luminaries of the Japanese insurance industry. Furthermore, these executives enlisted the support of the medical community even before AFLAC applied for its license.
Once AFLAC received permission to sell its product, it further moved to insure its own success by signing up large Japanese industrial and financial groups as agents, a variation on the cluster-selling theme. AFLAC paid commissions to the companies, which made the presentations themselves. Huge conglomerates including the Mitsui and Mitsubishi groups and the Dai-Ichi Kangyo and Sanwa banks tapped thousands of their own employees before having to search for customers. The plan was an unprecedented success. Japanese consumers had the money to buy coverage, meticulously paid their premiums, and had a very high rate of policy renewal. By 1987 the Japanese market accounted for two-thirds of AFLAC's total revenues and 70 percent of after-tax earnings.
Just as AFLAC's cancer insurance began taking off in Japan, the cancer insurance industry came under close scrutiny from a number of consumer groups in the United States. Two congressional committees investigated the product. The major complaints were that cancer insurance had limited value because it did not cover the entire cost of the disease and that the companies selling it, including AFLAC, used hard-sell tactics that exploited fear of cancer, particularly in elderly people.
John Amos was characteristically aggressive in defense of his company and its product. In 1979 AFLAC sued American Broadcasting Company (ABC) for alleged damages that resulted from a segment on insurance fraud on the network's 'World News Tonight' program. A similar lawsuit was filed against Changing Times magazine several months later.
In June 1980 John Amos appeared before the Senate Subcommittee on Antitrust and Monopoly. A Senate aide described the scene to Barron's (July 28, 1980): 'Amos sat with an attorney on each side of him and four corporate vice-presidents behind. There were public relations people handing out press kits by the door. They brought their own easels to display a bunch of charts. The hearing room was packed with sales agents and satisfied policyholders from every state. There were four senators there--Hatch, Laxalt, Leahy, and Thurmond&mdashø introduce their satisfied constituents. There was applause and cheers from the audience at every statement Amos made, and groans every time [Senator] Metzenbaum spoke.'
The Metzenbaum committee's report, a study from the Federal Trade Commission, another from the Massachusetts Department of Insurance, and several independent reports all suggested that cancer insurance was not a good buy because it covered only about a third of the actual costs of the disease, left a policyholder uncovered if struck by any other disease, and had a high premium relative to benefits.
AFLAC pointed out that in spite of all the controversy millions of informed customers wanted the coverage and continued to buy it. On the subject of fear being used to make sales, John Amos commented, 'All insurance is sold on fear.' By the time the controversy began to die down in 1982, Missouri, New York, New Jersey, and Connecticut had all placed restrictions on the sale of dread-disease policies.
Diversification in the 1980s and 1990s
AFLAC had, meanwhile, been building a chain of television and radio stations in the southern United States. In 1978, as the company passed the $1 billion mark in assets, AFLAC acquired WYEA-TV in Columbus, Georgia, and an NBC affiliate in Huntsville, Alabama. In 1979 two CBS affiliates were acquired, in Cape Girardeau, Missouri, and in Savannah, Georgia. A year later the Black Hawk Broadcasting Group, which consisted of two Iowa NBC affiliates, was purchased for $34.2 million.
Throughout the 1980s AFLAC continued to deal in media-oriented companies. In 1981 the group sold WYEA-TV to remain flexible within FCC regulations at a gain of about $1 million. Communicorp, an advertising and print media subsidiary, also was formed that year. In 1982 the cable franchises acquired in the Black Hawk Broadcasting deal were sold to CBS for a profit. In 1984 the Howard Printing Company was purchased for 56,952 shares and merged into Communicorp. Several more television stations were acquired in the latter half of the decade: WITN-TV in Washington-New Bern, North Carolina, for $25 million, in 1985; a Baton Rouge, Louisiana, CBS station for $59 million, in 1988; and an ABC station in Columbus, Georgia, in 1989, for $45 million. By the end of the 1980s, the broadcasting group was contributing about five percent of AFLAC's total revenues.
In 1983 several executive changes took place at AFLAC. Paul Amos, John Amos's brother, was moved up from president--a position he had held since his brother Bill's retirement in 1978&mdashø vice-chairman. Sal Diaz-Verson became president of the holding company, and Daniel P. Amos was elected president of AFLAC. Daniel Amos, John Amos's nephew, became deputy CEO in 1988, in preparation for his eventual promotion to CEO.
AFLAC's business in Japan became more significant throughout the 1980s. By 1986 AFLAC Japan's policies increased to 5.4 million, compared with 731,000 a decade earlier. In 1981 cancer became the leading cause of death in Japan, and while cancer insurance was criticized in the United States, it was welcomed by the Japanese, whose general health insurance picture was very different. Health insurance was written under the country's nationalized medicine program, and certain diseases were not covered. A co-payment of at least ten percent was also a standard feature. Supplemental dread-disease policies, therefore, became extremely popular, particularly with cancer, where many costs are nonmedical. Cancer insurance was widely accepted, and AFLAC Japan controlled 88 percent of the market by 1988.
Although AFLAC's success in Japan was stunning, there were certain pitfalls. Japanese regulations prevented the repatriation of Japanese earnings to the United States. The company was earning 70 percent of its revenues in Japan, but could not invest that money outside the country. In addition, with such a large percentage of its income earned in yen, AFLAC's bottom line was continually threatened by fluctuations in the value of the foreign currency.
Although the overwhelming majority of AFLAC's revenues were generated by cancer insurance, the company also introduced a number of other products over the years. In 1970 intensive care coverage was introduced. Supplemental senility policies were introduced in Japan in 1984, providing coverage for Alzheimer's disease and three other forms of senility. In 1985 a universal life insurance policy was introduced, followed by a Medicare supplemental policy a year later. In 1988 two new lines were introduced: accident insurance and advance life insurance, which allowed a policyholder to receive 25 percent of death benefits upon diagnosis of heart attack, internal cancer, or stroke, leaving 75 percent for beneficiaries. In 1990 AFLAC launched Super Cancer, a new upgraded policy for Japanese customers. Super Cancer offered a higher daily benefit than did the previously available product, as well as an additional lump sum payment for first occurrences. The policy also covered outpatient services.
AFLAC's earnings grew from $117 million on $2.7 billion in revenue in 1990 to $149 million on revenues of $3.3 billion in 1991. By that time, the company's share of the Japanese market for cancer insurance had grown to 90 percent, with 9.9 million policies covering 25 million people (one fifth of Japan's population) in force. On the first day of 1992, holding company American Family Corporation changed its name officially to AFLAC Inc. The company turned in record performances again that year, as total revenue reached the $4 billion mark for the first time. In May 1992 AFLAC introduced a new product called Super Care, designed to meet the long-term needs of Japan's rapidly growing elderly population. Super Care was AFLAC's first noncancer product offered in Japan. Among Super Care's benefits were nursing home coverage and a death benefit. Meanwhile, AFLAC's market share for supplemental cancer policies in Japan continued to creep up steadily, reaching 94 percent in 1992. During that year, 88 percent of AFLAC's new cancer policy sales in Japan were made through corporate-sponsored payroll deduction plans.
In spite of the popularity of cancer policies in Japan, cancer policies accounted for less than a third of the new AFLAC policies sold in the United States in 1992. The balance of U.S. sales came from supplemental healthcare protection for diseases other than cancer. One new market that AFLAC began attempting to tap in the United States around this time was HMO members. As employers started asking workers to contribute as much as 30 percent of the cost of their HMO membership, AFLAC began approaching HMOs about offering AFLAC's supplemental policies to their subscribers.
Preliminary figures for 1993 showed another big gain in company revenue, as much as 25 percent from the previous year. Toward the end of the year, AFLAC initiated a joint marketing agreement with CIGNA Corporation. Under the agreement, the two companies would cooperate in the development of group long-term disability products, which would then be marketed under the AFLAC name.
During the late 1980s founder John Amos himself suffered from cancer. Amos died in 1990 and was succeeded as chairman by his brother, Paul Amos. Paul Amos's son, Daniel P. Amos, acquired the duties of CEO and COO of AFLAC.
Into the 21st Century: New Challenges in Japan, New Opportunities at Home
AFLAC continued to experience rapid growth throughout the late 1990s. By decade's end the company controlled more than $37 billion in assets, and total sales for 1999 topped $8.6 billion. Much of this success came in the face of major changes in the Japanese insurance industry--which by the mid-1990s had reached a staggering $362.2 billion in value. The single most significant development for AFLAC was the completion of a far-reaching new trade agreement between the United States and Japan in December 1996. Three years in the making, the deal made the Japanese insurance market more vulnerable to increased penetration by foreign companies, by opening up 'mainstream' insurance sectors like life, auto, and fire, which had previously been subject to regulations that favored domestic companies, to outside competition. Perhaps more important for AFLAC, the deal also provided protection to companies that were already firmly established in so-called 'niche' markets, effectively making the cancer insurance sector off-limits to Japanese firms until 2001.
Whereas AFLAC was obviously pleased with the new regulations, the company's Japanese competitors were extremely critical, claiming that the agreement's bias toward foreign corporations could prove potentially devastating to domestic insurers. Indeed, there was some substance to these allegations, as a number of prominent Japanese insurance companies found themselves out of business by decade's end. AFLAC, meanwhile, thrived under the new conditions, in spite of the recent downturn in the Asian economy. In June 1997 the company became the first foreign insurer in Japan to exceed ¥2 trillion in gross assets, and by 1999 it had established policies with employees at 95 percent of the companies on the Tokyo stock exchange.
It was its solid presence as a major insurer in Japan that helped AFLAC weather the economic storm that hit Asia in the late 1990s. The steady decline of the yen throughout the decade ultimately took a bite out of AFLAC's share value, and in 1997 the company saw its new sales rate in Japan drop 20 percent. AFLAC was saved, however, by the strong persistency rate--the percentage of policy renewals--of its established Japanese clients, a rate that held steady at 96 percent throughout the mid-1990s. The company's ability to exceed analysts' expectations, while other U.S. companies doing business in Asia were floundering, caused its stock to begin rising again in early 1998; by December, the company's share value had increased 75 percent for the year. In 1999 the company finally was able to exceed its 1996 sales figures for new policies in Japan, achieving revenues of ¥87 million, an increase of almost ¥8 million.
AFLAC's domestic business also underwent dramatic changes during the late 1990s, beginning with the sale of its broadcasting unit to Raycom for $485 million&mdash⟩proximately 14 times the unit's annual cash flow. This money went directly into strengthening the company's insurance operations, which included expanding its advertising budget. In October 1996 the company reached an agreement with Fox Sports to run ads during the baseball playoffs and World Series. In December 1999 AFLAC took a significant step toward establishing national brand-name recognition when it launched a humorous new advertising campaign, which featured a digitally animated duck that quacked the word 'AFLAC.'
Facing the further deregulation of the Japanese insurance industry in 2001, AFLAC CEO Dan Amos met repeatedly with Japanese regulators throughout 2000 in the hope of easing the company's transition to a more competitive marketplace. In 2000 AFLAC still controlled 90 percent of Japan's cancer insurance coverage; to help secure this market share it established a marketing agreement with Dai-Ichi Mutual Life Insurance Co. in September 2000, wherein the companies would begin selling each other's products. AFLAC also began to turn its focus toward small businesses in Japan, a market where it held only a 20 percent share by the end of 1999.
As it entered the 21st century, AFLAC had no reason to feel anything but confident about its prospects for success. Forbes Global named AFLAC the world's Top Insurer in 1999, and the company was one of only 23 American companies listed in Andrew Leckey's Global Investing 1999: A Guide to the 50 Best Stocks in the World. That same year, Dan Amos was one of 16 CEOs from major corporations invited to participate in President Bill Clinton's New Markets Initiative, a program designed to explore business opportunities in America's rural and inner city areas.
Principal Subsidiaries: AFLAC U.S.; AFLAC Japan; AFLAC International, Inc.
Principal Competitors: American International Group, Inc.; Conseco, Inc.; UNUMProvident.