By Cyril Tuohy
As the United States, the world’s biggest life insurance market, ages and faces an uncertain economic future, the insurance industry may see gloom on the horizon. But a company in the world’s second-largest life insurance market might offer a model for success in the new normal.
Japan’s long-running woes include stagnant growth, falling prices, minuscule interest rates, low birth rates and an aging population. More recent ones include an earthquake and tsunami and tensions with China. Through it all, Prudential of Japan (which entered the country in 1979) has racked up a string of profits built on low agent turnover, cross-selling and a patient, long-term approach in keeping with Japanese culture and which might hold lessons for American insurance agents and brokers looking ahead.
With slightly less than half the U.S. population (127 million to America’s 310 million), Japan nevertheless sports insurance premium volume of $525 billion, just under the U.S.’s volume of $538 billion, according to Swiss Re data. But that huge volume, and the household wealth that underpins it, belies the gloomy trends: a median age of 45.8 years and a shrinking population, according to the CIA’s World Fact Book.
Nevertheless, Prudential of Japan’s (POJ’s) new business premium of $1.34 billion in 2012 caps five-year compound annual growth of 8 percent, the company said. Operating revenue of $9.0 billion represents five-year compound annual growth of 11 percent, and pretax operating income of $1.48 billion also translates into an 11 percent compound annual growth rate over the past five years, the company said. POJ managed to raise average quarterly annualized new business premiums from $162 million in the first quarter of 2011 to $217 million in the first quarter of 2013.
Behind the impressive financial numbers is a sales force has become the envy of the Japanese life insurance industry. As many as 29 percent of POJ life planners belong to the Million Dollar Round Table, according to MDRT Association, Japan, and agent retention surpassed 90 percent last year, according to Prudential data.
“We want to make sure we are planting seeds that can grow over time,” said Ed Baird, executive vice president and chief operating officer for Prudential International.
The longer that financial advisers – known within Prudential as “life planners” and “life consultants” – remain in the business, the less the company has to spend on recruitment and training. Agent longevity leads to higher rates of customer satisfaction and higher-quality referrals, POJ said. With those building blocks in place, margins go up as agents stay focused on high-margin products and as the company retains tight control over its captive agent channel.
“Anytime you can keep 90 percent of the sales force, you have an enormous engine for growth,” Baird said, speaking at the company’s investor day in New York last week.
When POJ entered the Japanese market, the sales force was small. Over the years, the sales force grew slowly and the company made sure there was a cadre of agents coming up behind the veterans, Baird said.
“We work hard to feed the group,“ Baird told analysts. “We try to hire between the ages of 25 and 35.” The average ages of a Prudential life planner is now in the mid-30s, and the company has hired between 400 and 500 agents every year.
Key to creating a strong agent culture is the company’s intent to “Prudentialize” a sales force following acquisitions such as the AIG Star life business and the AIG Edison annuities business, purchased in 2011 and folded into POJ’s Gibraltar Life Insurance Co. Ltd., which sells to the middle market.
The acquisitions raised the number of Gibraltar agents to 13,227 in the first quarter of 2011, but that had dropped back to 10,252 in the first quarter of this year, as Prudential moved all the agents to a variable compensation structure and some agents dropped out.
“What we want to do is more sales per agent,” Baird told analysts.
Where the numbers get really interesting, though, and where there’s a lesson for U.S. advisers, is the agents’ ability to make “second sales” to existing customers. POJ’s new business premium for death protection, accident and health and retirement jumped more than 30 percent to $192 million in 2012. Over the past four years, retirement products have slowly represented a larger share of that premium. Shifting to more selling through banks and independent agents is also boosting sales.
“These life planners are talking to people they already have so there’s a new growing business opportunity embedded therein,” Baird said. “The business that sticks is what matters.”
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].
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