True competitor Featured

8:00pm EDT May 14, 2006
Kriss Cloninger III knows that insurance is a very competitive industry.

As president and CFO of Aflac Inc., not only does he have to compete with other insurance companies for customers, he has to compete for employees, as well. To overcome that challenge, Cloninger and chairman and CEO Dan Amos have made it a point to be very self-critical.

“We try to find weaknesses in what we are doing, looking at ourselves as if we were the competitor and trying to address what it is that Aflac is doing that a competitor could come in and try to do differently,” says Cloninger.

And that means taking a proactive approach to ensure that they are providing the best products and services for their policyholders. Members of management regularly performs a SWOT (strategies, weaknesses, opponents and threats) analysis of the company, in which they evaluate existing products, experiment with new products and look for ways to tap into new markets.

From those regular analyses came a two-part plan to continue to grow the $14 billion supplemental insurance company — expand Aflac’s product line and grow its distribution system of independent sales associates and insurance brokers.


Innovation drives growth
Aflac has gained new customers in part by coming out with new products and by tweaking existing ones. Aflac’s executive team decides which products to add by speaking with field agents who regularly communicate with customers.

“We talk to our agents in the U.S. field force about what customers are asking for that we don’t presently have in our portfolio,” says Cloninger. “We have a representative group that we bring in to headquarters twice a year to talk to us about product ideas.”

Cloninger puts the advisory council together based on recommendations from state sales offices and tries to include agents of all levels within Aflac’s sales force. These agents ask customers what additional products they would like Aflac to offer and ask noncustomers what would convince them to purchase Aflac products. The council gives input about a new product multiple times over the course of that product’s development.

Because agents work on commission, they are always motivated to come up with new products that might be big sellers. Both dental and vision insurance products came from the advisory council.

Dental insurance, which was added about four years ago, was instantly popular with Aflac’s customers and made up 7.4 percent of new sales in 2005. Vision insurance was introduced in the middle of 2005 and made up 2.2 percent of new sales for the remaining half of the year.

Cloninger watches the competition to see what it is doing, but innovation usually occurs through those conversations with agents and by looking critically at every aspect of Aflac. Most Aflac products are updated about every three years to ensure that the company remains a market leader.

“We look at new things that are being done to treat major illnesses like cancer and make sure that our products fit the latest health care delivery system,” says Cloninger. “We’ve added benefits to our cancer policies over the years to do things like pay for experimental treatments, pay for treatments by recognized national cancer centers.”

Cloninger also has to manage product pricing.

“We try to price all of our products on a so-called level premium basis, where we don’t have to go back and ask for premium rate increases as many supplemental insurance companies do,” says Cloninger. “We want to sell a product that is priced so that the customer will have the same premium over the life of the contract. We do that for all of our products, except Medicare supplement products that have government-mandated increases in benefits every year.”

Cloninger also came up with an idea several years ago to help save customers money when they switch jobs. With Americans frequently changing jobs, he feared those customers might drop Aflac coverage rather than continuing to pay premiums — which would now also include the portion the employer had previously been paying — while waiting for coverage to begin at a new job.

“When a person leaves one payroll account, if they sign up with another payroll account and do the same Aflac product within a two- or three-month period, we’ll waive the premiums due during the period that they were not associated with an employer,” Cloninger says.

Today Aflac has 90 percent name recognition, but it wasn’t always that way. For example, in the mid-’90s, it didn’t have a large presence in densely populated New York and California.

“We took on an initiative to make sure that we invested in growing our distribution network in those states,” says Cloninger. “At the time, California wasn’t even in the top 10 of our producing states. Now California is the No. 1 state in terms of new premiums written. New York has grown similarly.”

To build market share in those key states, Aflac used television advertising starring a mischievous duck. The idea for the Aflac Duck, created by the Kaplan Thaler Group, arose when employees were having a difficult time pronouncing Aflac — and someone noted that the name sounded like a duck’s quack.

The duck commercials helped lead the company to unprecedented growth for the next three years, as Aflac grew by 28 percent in 2000, 29 percent in 2001 and 17 percent in 2002, almost doubling sales in that three-year span.


Building the right infrastructure
Now that Aflac had tremendous brand recognition, it was growing so quickly that its sales infrastructure could not support all of its new customers and employees. The company’s infrastructure had to change, and new agents were needed to sell Aflac products to continue the growth.

In the past, one sales coordinator was in charge of an entire state. That person managed regional and district coordinators, who were responsible for certain subsets of the state’s population. Cloninger says that the optimal number of regional and district coordinators is five to seven, but after the introduction of the Aflac Duck, that grew to as many as 14 in some states — too many for one state sales coordinator to handle.

The company couldn’t react to new clients as quickly as it wanted to and wasn’t able to expand into new markets. The solution was to divide a state into two or three organizations, with a state sales coordinator in charge of each organization. That change helped Aflac cope with its fast growth and allowed it to expand into untapped markets. In 2000, there were about 56 state organizations. Today, there are 97.

Aflac has 4,800 employees at its Columbus headquarters and more than 60,000 people in the United States who are licensed to sell insurance for Aflac, but it always needs more qualified salespeople. To find them, Cloninger relies on what he calls circles of influence.

“We encourage our sales management team to look at new people they meet and think about whether or not those people would fit an Aflac sales position well,” says Cloninger. “Personal recruiting is the most effective way of assessing whether or not someone has the energy, drive and personality to succeed in representing us as an independent agent.”

Employees are encouraged to talk to people, even while waiting for a table at a restaurant. Sales experience isn’t necessary; in fact, Cloninger says that people without experience often make the best agents.

“People like school teachers, nurses and firefighters, people who service the public and understand the day-to-day issues that people have financially, can relate to our products,” says Cloninger. “Another category of people that are very effective with us are the people that have experienced the benefits of owning Aflac products, either through personal illness or accident.”

Agents have incentives to recruit new agents — they can advance their own careers by building a sales organization underneath them. If agents recruit new agents, they receive additional compensation based on the business produced by those agents.

Although it is up to the district sales coordinators to train new agents, Cloninger wants training to be uniform across the organization. In the past year, experienced agents were brought into headquarters with the goal of creating a uniform training curriculum — essential because it helps ensure that a uniform message is communicated to customers.

Those agents came up with an academically based program in which new agents must study and learn about Aflac products and their benefits, then go into the marketplace and apply what they’ve learned. New agents are taught how to identify the most likely consumers of Aflac and how to approach them and explain how Aflac would benefit their organizations.

Once Aflac has attracted and trained new employees, it must then work on retaining them by creating a good work environment.

“We have stayed committed to Columbus, Ga.,” says Cloninger. “We are well-known in the community. We have another well-known company or two in the community who also treat their employees well. ... It’s kind of like we’re competing for the same body of employees. We need to make sure our employees are happy so they’ll stay with us instead of going across the street and working for someone else.”

In fact, Aflac honors its employees with a whole week of appreciation, featuring food, a concert, a baseball game, drawings and employee recognition. Last year, Aflac celebrated its 50th anniversary, and all employees with at least 25 years of service were surprised with a weeklong Caribbean cruise for them and a guest.

Aflac also recognizes that employees have a life outside of work, so it developed a program called Lunch and Learn to address personal development topics such as financial planning and tips for first-time home buyers. A speaker comes in during the lunch hour, and everyone is invited.

Aflac was named by Fortune as one of 2006’s 100 Best Companies To Work For for the eighth consecutive year and one of Fortune’s 2006 America’s Most Admired Companies for the fifth consecutive year.

Although Cloninger and the rest of management continue to look at Aflac with a critical eye, it has become a company that many wish to emulate. Its revenue increased 8.1 percent from 2004 to 2005, it insures more than 40 million people worldwide and Cloninger says it is on track to increase new sales between 8 percent and 12 percent in 2006.

“I’ve never seen a company that’s done as well year in and year out as Aflac,” says Cloninger. “I’m proud to have spent the bulk of my career being associated with it.”

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