AFLAC built its dominant position in the Japanese supplemental insurance market because Japanese regulators actively discouraged new entrants into this market. The Financial Big Bang policy now encourages new entrants into the supplemental insurance market. What has AFLAC done to protect its market position? What else can AFLAC do?

Two decades ago, most Americans had never heard of AFLAC, a \($21.7-billion\) insurance company based in Columbus, Georgia. Thanks to AFLAC’s mascot, this is no longer the case. The company’s attention-grabbing advertising campaign, which began in 2000, features a helpful but frustrated duck that fails to get people to acknowledge his presence or the company’s name. Nonetheless, the duck’s efforts appear to be paying off. According to advertising surveys, 94 percent of Americans are now aware of the AFLAC brand; more importantly, policies in force have risen more than 50 percent and annual premiums have more than doubled since the duck commercials began in the United States. And the AFLAC duck has done more than simply increase the company’s American sales.
AFLAC now sells plush replicas of the duck on its website and donates the proceeds to a children’s cancer center in Atlanta. During the Christmas season, AFLAC teams up with a major department store chain to sell special-edition AFLAC holiday ducks. To date, \($3\) million has been donated to 40 children’s hospitals around the country from their sale.
Despite the duck’s efforts, AFLAC is still a small player in the U.S. market.
Its \($6.3\) billion of revenue in the United States is dwarfed by such insurers as AIG, Prudential, or MetLife. Such is not the case in Japan, where an estimated 25 percent of the populace has purchased AFLAC insurance.
AFLAC does more than 70 percent of its business in Japan. Its assets in Japan are huge—\($114\) billion—compared to only \($23\) billion in the United States. Thus, AFLAC is a rarity among U.S. multinational corporations—
its dominant market is Japan, not the United States. AFLAC specializes in supplemental insurance—insurance that covers specific types of problems, such as cancer, disability, or accidents. The company was founded on a shoestring in 1955 as the American Family Life Assurance Company. The three founding brothers—Paul, Bill, and John Amos—scraped together \($40,000\) to launch the enterprise. In its early years the company struggled through many crises; once the Amos brothers were so short of cash they had to sell off the office furniture.
AFLAC’s big break came when John visited the Osaka World’s Fair in 1970. He noticed that many Japanese walked around in surgical masks to reduce the spread of respiratory infections. Amos believed that such health-conscious consumers would be prime candidates for supplemental insurance. Entering the Japanese market was no picnic, however. It took AFLAC four years to receive regulatory clearance to begin marketing its products there.
AFLAC initially focused on selling cancer life insurance in Japan. As its knowledge of the market grew, it added accident, nursing care, medical, and other specialty policies to its product line. It has enjoyed continual growth in the years it has operated in Japan. AFLAC’s competitive strength lies in its distribution network. Its products are sold by an army of licensed sales associates, some 110,000 strong, working through 12,000 independent insurance agencies. Ninety-one percent of the companies listed on the Tokyo Stock Exchange offer AFLAC products to their employees through payroll deduction programs.
AFLAC strives to deliver high-quality service to its customers, settling claims in an average of four business days. The company has also adapted its operating procedures to the needs of the local market. Consider its human resource practices. When the company first ventured into Japan, it copied the lifetime employment and seniority-based pay and promotion policies then current in Japan. In the past several years, some Japanese companies have switched to job-based reward systems, in which salaries are based on the skill requirements and difficulties of the job. So too has AFLAC.
AFLAC has added some “made in U.S.A.” features to its Japanese operations. Nearly half of its Japanese employees have been granted stock options, reinforcing their commitment to the company’s future. It has funded three AFLAC Parents’ Houses in Osaka and Tokyo, providing a place to stay for families whose children have been sent to those cities to receive medical treatment for pediatric cancer and other life-threatening diseases. AFLAC also funds college scholarships for Japanese high school students who have lost a parent to cancer.
AFLAC is the largest provider of supplemental insurance in Japan. Its Japanese revenues reached \($15\) billion in 2017. Given the graying of the Japanese market—older folks tend to buy more insurance—the high profit margins of its product line, and an overburdened Japanese healthcare system that is shifting costs to consumers, AFLAC believes that the profitability of its Japanese operations will continue to grow.
AFLAC does face numerous challenges, of course. For many years it benefited from the Japanese government’s restrictive regulation of the country’s financial services sector, which discouraged competition and price-cutting. To combat Japan’s decade-long economic slump, the government relaxed its regulation of financial services, a process known as the Regulatory Big Bang. In 2001, the Ministry of Finance allowed additional firms to begin selling supplemental insurance, including domestic giants like Tokio Marine & Fire and Nippon Life. To date, the increased competition has not dethroned AFLAC from its market-leading perch. Its operating costs are less than those of its rivals. To maintain this edge, AFLAC has streamlined its operations, allowing sales agents to submit policy applications online and introducing new online billing techniques. To bolster its sales position, AFLAC stepped up its recruitment and training of sales agents and developed new products for them to sell. It entered into a strategic alliance with Dai-ichi Mutual Life, the second-largest life insurance company in Japan. Dai-ichi Mutual’s 40,000-person sales force helps market AFLAC’s supplemental policies to retail customers. In addition, AFLAC products are available at 374 Japanese banks and at 20,000 branches of Japan Post.