American Family Corporation
American Family Corporation
American Family Center
1932 Wynnton Road
Columbus, Georgia 31999
Fax: (404) 323-1448
Assets: $6.52 billion
Stock Exchanges: New York Pacific Tokyo
Established in April 1973 as the holding company for a specialized insurance subsidiary, the American Family Corporation now operates more than 25 insurance and broadcasting units throughout the world, with the bulk of its business in the United States and Japan. The company’s chief operating units, the American Family Life Assurance Company of Columbus, Georgia, (AFLAC) and AFLAC Japan, have developed a number of unique marketing techniques to sell a product which they introduced more than 30 years ago—supplementary cancer expense insurance. The company has been one of the fastest-growing companies in the health insurance industry. AFLAC, American Family’s chief operating company, was founded in 1955 with about $300,000 in capital. American Family now has assets in excess of $6 billion.
In 1955, a young lawyer named John B. Amos returned to his hometown of Columbus, Georgia, and with his two brothers, Bill and Paul, and father Shelby, 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% of the costs of cancer treatment. The early policies were designed to cover up to 50% 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. American Family built up an aggressive, well-paid sales force that would typically sell to 5% 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 the 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.
During the 1970s a number of companies, seeing American Family’s success, introduced cancer policies of their own. By the end of the decade there were about 300 insurers selling cancer coverage. American Family, however, handily controlled the market, having sold about 60% 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% to $205 million, while earnings jumped to $25 million—a 181% increase.
Much of American Family’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 co-workers—potential policyholders—and the Ministry of Finance. Also, 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 like 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 American Family’s total revenues, and 70% of aftertax earnings.
Just as American Family’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 American Family, 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 American Family sued the American Broadcasting Company 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—to 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, along with 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.
American Family 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.
American Family 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, American Family 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 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 American Family 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, was also 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 5% of American Family’s total revenues.
In 1983 several executive changes took place at American Family. Paul Amos, John Amos’s brother, was moved up from president—a position he had held since his brother Bill’s retirement in 1978—to vice chairman. Sal Diaz-Verson became president of the holding company, and Daniel P. Amos was elected president of AFLAC. Daniel Amos, John Amos’ nephew, became deputy CEO in 1988, in preparation for his eventual promotion to CEO.
American Family’s business in Japan became more significant throughout the 1980s. By 1986 AFLAC Japan’s policies increased to 5.4 million, compared to 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 10% was also a standard feature. Supplemental dread-disease policies, therefore, became extremely popular, particularly with cancer, where many costs are non-medical. Cancer insurance was widely accepted, and AFLAC Japan controlled 88% of the market by 1988.
While American Family’s success in Japan has been stunning, there are certain pitfalls. Japanese regulations prevent the repatriation of Japanese earnings to the United States. The company earns 70% of its revenues in Japan, and cannot invest that money outside the country. Also, with such a large percentage of its income earned in yen, fluctuation in the value of the foreign currency is a threat to American Family’s bottom line.
While the overwhelming majority of American Family’s revenues have been, and continue to be, generated by cancer insurance, the company has 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 policy holder to receive 25% of death benefits upon diagnosis of heart attack, internal cancer, or stroke, leaving 75% for beneficiaries.
During the late 1980s founder John Amos himself, suffered from cancer. Amos died in 1990 and was succeeded as chairman by his brother, Paul S. Amos. Paul Amos’s son, Daniel P. Amos, added the duties of CEO and chief operating officer of American Family Corporation, while remaining president of AFLAC. John Amos had built a huge financial corporation out of a small market niche. With assets of over $6 billion, the company’s future looks secure, and the company’s new management team looks for new ways to expand.
American Family Life Assurance Company of Columbus; AFLAC Japan.
McMennamin, Breeze, “‘A Heck Of A Sales Force,’” Forbes, March 1, 1977; “American Family: Big Profits from Cancer Insurance,” Dun’s Review, March 1978; Englade, Kenneth F., “The First American Family of Japan,” Across the Board, March 1987.
—Thomas M. Tucker