Life Insurance F2F Sales Channel Evolves? / 生保営業は変わるか？

I used to work for life insurance companies in Japan, and also have looked at the market as an industry researcher in consulting firms, collectively for almost 20 years. One of the most frequent asked questions about Japanese life insurance industry has been that "Why Japanese do not buy life insurance products on-line?".

Japanese online market for life insurance products

The ratio of on-line purchase of insurance products accounts for 3.3% in Japan, according to the recent survey in 2018*(note 1). Majority of the sales still comes from in-person channels including captive agents, institutional companies and banks. The same ratio of on-line sales in 2006 was 1.8%.

Interestingly, the survey asked about future intention of purchasing channel as well. 12.5% of 2018 respondents said "online", which is much higher than reality (3.3%). It shows its increasing trend, but at the same time it would be the maximum upside. For comparison, the same number in 2006 was 5.9%. Considering those figures, we can say life insurance online market grew but did not as people had expected. As a comparison, online purchase preference by the US customers accounts for 22% in 2016(*note 2), which is almost twice of Japanese.

Just for clarification, Japanese people do buy products through on-line retailers such as Amazon, Rakuten, or through the business owned on-line channels. Japanese people are generally well equipped with digital infrastructure as you know. Therefore, the insurance shopping behavior seems to be rooted from being insurance itself to much extent.

Innovation Dilemma of Insurers

I once tried online-complete sales channel launch when I was an insider of the industry, which was in 2000's. More preciously, I set up an online platform for direct communication with the (potential) customers. Unfortunately, the initiative got closed before we would start selling the product online, because of some business restructuring associated with M&A.

At that time, the sales of the company was mainly from F2F (in-person) by captive agents and some from corporate agents. Bank line was a new promising affiliation channel then. That was true to almost all of life insurers at that time. There were a few foreign oriented insurers offering direct sales of the insurance products. They were selling products through direct mailing / calling with mass marketing through TV/radio/magazines or affiliates such as credit card companies.

One thing, for sure, which prevented online channel development is described as a typical innovation dilemma. Everybody including myself knew that online selling of insurance products was not easy and the company hesitated to invest there instead of existing huge F2F channel. It was also afraid of cannibalization of the market by creating a new sales channel.

Similarly there was also some constituency issues such as labor unions, which would be against competing channel creation. At mutual insurance companies, they were literally stakeholders.

Existed a strong business model as well. For many life insurers, finding prospective customers was hugely relied upon individual captive agents. Usually newly hired agents started with "100 friends project" which means they sell insurances to their friends and families first and build the network on them. Leveraging existing relationship itself is not blamed at all but it seemed almost like insurers buying sales prospective by hiring sales agents. Moreover, insurers had little idea of finding sales leads other than through hiring people and referring from existing customers. Typically, TV commercial film featured products by direct players, on contrary sales agents by traditional players.

Most customers may not want it

Well then, hate for change was the root cause for such low volume of online sales of Japanese life insurers? In 2008, Lifenet Life, a insurance venture, started up as a purely internet selling insurer. The founder of the company was from Nissay, one of the most established life insurers in Japan. Lifenet showed the cost structure of the life insurance to the customer, for the first time in Japan, to convince that direct sales through internet is cost saving option while SG&A from F2F is costly.

It was a revolutionary attempt and people in the industry carefully kept an eye on how it would go. Lifenet went public in 2012 and held more than 300 thousands policies in the end of 2019. Not bad? However, the online market is still such a small, saying less than 5% in total as we saw already. In the beginning, Lifenet sold only through internet channel of the agent companies and its own, but began selling F2F channel of the agents in 2012.

If you are familiar with UK insurance market, you know how aggregators transformed the market. Looking at Japanese market, I find little difference in what multi-career agent companies do and that UK aggregators do. Why hasn't the big disruption happened here?

Low financial literacy explains

I think the biggest anchor of sticking to F2F is "insurance literacy" of the general Japanese public. They still love endowment insurance a lot, for example. I myself has an endowment policy and the product itself is not good or bad. However, if the reason they choose endowment policy over simple death insurance is just because the latter will be a waste of money when nothing happens, that is an ignorance of insurance. If you know endowment insurance is just a combination of death insurance and saving, there is no loss or gain.

It is not only in insurance. Generally speaking, people including me have not been educated in financial management properly at schools in Japan. In a sense, for a long time, Japanese people have been free from worrying about money after retirement because of robust national pension system. Recently, the government tried to show that people themselves should prepare extra JPY 20M for after retirement life in addition to national pension, that caused a big controversial discussion. I would not explore more on it here, but I could say that is an evidence of low financial literacy. Another example is seen at 401K program, where more than 50% of assets are allocated to principal protected products*(note 3). It may be related to risk adverse tendency of Japanese, of course, but also resulted from lack of investment education.

Covid-19 becomes a game changer?

Most insurance industry insiders know the things I described above from experiences, although they may have not explicitly said. When I tried to launch the new internet channel, many experienced colleagues told me that people would not buy through internet because they were afraid of purchasing what they do not know much about. Then, I prepared a lot of contents to educate on the site and in mail magazines. Lifenet also seems to have been following the same strategy.

Now, if this hypothesis is correct, the change won't happen overnight, but when will it be?

I am very curious about how Japanese financial intelligence is improving over time. Younger generation is said that they are more practical and savvy in financial activities. They are also used to learn something online very quickly. Once they become more acquainted about financial matters and more active in their own financial planning, they may not need F2F help any more as older generations did.

Covid-19 will not affect directly on the people's financial literacy, although that may pushed it up a little if an associated recession requires people to learn. Rather Covid-19 opened up opportunities for traditional players' experiments. Some insurers, because of the social distance requirements, decided to allow customers to close the contracts remotely, which had not been allowed. Many of the customers will still prefer F2F once the restriction goes off, however, that is a tremendous opportunities for insurers to learn which part of the sales process is better handled by people and which part is not, or rather to be supported better by digital enabled communication.

Japanese insurers should prepare themselves to support online insurance shoppers, who are not much visible right now. Once younger financial savvy consumers become main sales target of them, what happened in UK or in the US may come to Japan very quickly. The mindset also helps insurers to support F2F preferred customers better as well.

NOTE: *1 - Japan Institute of Life Insurance(2018), *2 - LIMRA(2016), *3 - Daiwa Institute of Research(2019)

The content of this article is solely based on the views of the individual author and does not necessarily reflect those of her previous or current employers.