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Innovative Insurance Ideas - Increasing Scope for Innovative Sales Models

Innovative Insurance Ideas

Bancassurance has proved to be the most successful of the new channels for sales of life insurance. Partial deregulation in 2002, allowing banks to sell annuities, a few asset-formation products, and some P&C insurance, proved that large banks have incredible selling power through their branch channels. In 2006, banks accounted for 44 percent of annuity premium income sold by private insurers. As in most other Asian countries, the trustworthy reputations of banks and their established branch coverages have made them successful in cross-selling insurance products to their customer base. 

With complete bancassurance deregulation in December 2007, this channel has become even more important for life insurers, and its evolution is likely to reshape the power structure of Japan's life insurance industry. The power of the banking channel can be seen through the development of mutual-fund sales. From 1998, when mutual-fund sales through banks were deregulated, to 2005, approximately 43 percent of publicly offered, mutual-fund sales came through banks.

Besides bank branches, other sales channels are also gaining ground in insurance distribution (albeit on a smaller scale), including brokerages, retail storefronts, and direct sales - or a combination of the three. Retail storefronts are designed to serve as face-to-face channels for customers with "consultation needs." These storefronts are complementary to direct sales and are mainly run by contracted agents. ALICO operated some 210 shops as of June 2008 and AFLAC operated some 600 shops as of August 2008.

One innovative company to look at in the brokerage channel is Advance Create, which pioneered the model of brokerage shops. From its inception as a single-room start-up in Osaka in 1995, to the end of 2003, Advance Create's business was lopsidedly dependent on one old-fashioned approach, a flyer-based, mail-order channel, the so-called "posting" method. Then, starting from 2004, the broker revamped its sales model by introducing insurance brokerage shops, located at high traffic locations such as shopping centers and open to "walk-ins" at late hours and on weekends. 

Advance Create's life insurance consultants customize insurance packages by picking products out of a portfolio of some 40 insurance companies. This represents a major deviation from the traditional "push-based" approach where insurance agents contact potential clients unsolicited. The company's scale and impact has remained modest though. By March 2008, Advance Create had 69 shops in 26 prefectures across the country. For the year ending September 2007, Advance Create earned US$79 million in annualized new premium, approximately half of which originated from the brokerage shops.

Another interesting distribution model is shopassurance, which started in the 1980s and has seen mixed success. Shopassurance refers to the in-store insurance counters located in retail stores such as hypermarkets.
For example, Ito-Yokado, one of the major mega-supermarket chains in Japan, owns an agent business with branches located within its supermarkets, selling the products of more than 10 life insurance companies. This model is not a straightforward success though.

ORIX Life launched direct channel sales in 1997 to sell its low premium, no-frills, traditional insurance to retail customers. By cutting costs for agencies, it was able to offer discounts of 20-30 percent on premiums for direct channel products. For the 12 months ending March 2007, total premium income, including sales by direct and agency channels, was US$1.1 billion. Another innovative insurer is Sompo Japan Life Insurance Co., which has two subsidiaries: Sompo Japan Himawati Life and Sompo Japan DIY Life. 

It markets life insurance products using non-face-to-face methods, such as mail order, telephone sales, and internet sales. Its core products are various forms of one-year, term-life insurance, which allow customers to review their insurance needs according to their life stage by adding riders for various types of cover, such as hospitalization, cancer, and income replacement insurance. These products are very popular with customers who want to design their own insurance products. 

In 2002, Sompo DIY Life started offering one-year, term-life insurance called "Kumitate Kit" (assembly, or DIY, kit in Japanese) on the internet. Customers can input their needs and calculate the premium amount online. In November 2007, the company launched yet another product, a ready-made, one-year, term-life insurance called "Simple Select."

Meanwhile, the October 2007 privatization of Japan Post is seen as a significant event by many industry insiders. Japan Post's holding company, bank, and insurance company plan to launch public offerings in the near future, thus creating pressure for these entities to boost their revenue sources. This has opened up some 20,000 postal branches as channels for private insurers to sell products that Japan Post Insurance does not itself carry. For example, AFLAC has been selected to be the exclusive supplier of cancer insurance through the postal system, significantly boosting AFLAC's distribution network.

In all, these new developments in distribution channels are creating strains for the traditional tied-agency model. The number of tied agents dwindled from over 300,000 in 2003 to less than 250,000 in 2007.

However, tied agents should not be written off just yet. Their competitiveness and survival depend on how well they respond to the challenge and transform themselves. Tied agencies are still the largest channel and are likely to remain so for the foreseeable future, and players with superior sales forces will continue to have a significant advantage in the market. For sure, the traditional, housewife-sales approach, based on strong customer relationships, is under pressure but like most things in Japan, will only change gradually. Its final demise should not be expected any time soon.

Meanwhile, agent networks with financial planners who tend to be better educated and often, male, have the upper hand in selling investment products. They are much more effective in serving the needs of increasingly affluent Japanese consumers than the traditional sales ladies. These more investment-focused agents have remained relatively small scale though.

A good example of this is SONY-Prudential (US), a joint venture, started in the early 1980s and dissolved in the late 1980s as SONY and Prudential (US) parted ways to pursue their separate ventures. It captured significant market share by introducing the revolutionary concept of insurance agents as "life planners." Their success illustrates the point that in mature markets such as Japan, the agent channel will have to upgrade itself with the market and adopt a more professional approach. To find out more, you can check Innovative Insurance Ideas.