Home > News
  print button email button

Wednesday, April 16, 2008

REVOLUTIONIZING AN INDUSTRY

Insurer looks to online sales to undercut big firms


Staff writer

Daisuke Iwase, 32, immediately felt chemistry when he was introduced to Haruaki Deguchi in Tokyo's Akasaka district two years ago. The chemistry was all business.

News photo
Daisuke Iwase, vice president of Lifenet Insurance Co., talks about launching the new business during an interview at the company's office in Chiyoda Ward, Tokyo. SATOKO KAWASAKI PHOTO

Three hours of talks about a strategy for a potential online insurance firm was enough to persuade the young graduate of the Harvard Business School to start a company with Deguchi, who had worked at Nippon Life Insurance Co. for 35 years.

Two years on, Iwase and Deguchi are in the final stage of launching the online business Lifenet Insurance Co. on May 18. The life insurer will offer coverage similar to that of big-name insurers but undercut their prices by 30 percent, they said.

"We want to challenge the gigantic inefficiency" of the insurance industry, said Iwase, who as Lifenet vice president works under Deguchi, the president. "I think it's worth challenging."

The strategy is simple: Cut sales and operating costs by selling policies online.

Sales channels for life insurance products vary by market. In France, insurance policies are sold at banks, while in the United States policies are sold at agencies.

In Japan, life insurers normally invest a large portion of their financial resources in "insurance ladies," who are often assertive middle-aged women who build up personal contacts with clients and persuade them to buy their policies.

Despite the money the companies invest in their sales personnel, about half of them quit within a year, and the hiring and training costs the companies shoulder weigh heavily on their profits.

In fiscal 2006, Nippon Life Insurance Co. had a ¥13.1 billion payroll covering some 52,000 salespeople. The figure for Dai-ichi Mutual Life Insurance was ¥8.94 billion, covering about 43,000 employees.

Another burden on companies competing for a slice of the life insurance industry's ¥45 trillion in annual sales is the considerable bureaucracy and paperwork that arises from having to deal with contracts, medical certificates and insurance claims.

And the higher costs are reflected in premiums.

"But by using the Internet, we could slash the personnel cost and cost for paperwork," Iwase said. "That's why we could reduce the premiums."

Lifenet hopes to bring about drastic changes in the life insurance industry in the same way online brokerages and banks have helped existing companies improve their services by offering lower commissions and longer service hours.

Opportunities for venture businesses like Lifenet, which has some ¥13 billion in capital, emerged when the Financial Services Agency unfroze premium prices in April 2006.

Until then, life insurers were obliged to get approval from the FSA when they wanted to change premiums. But the deregulation allowed them to make changes under certain conditions without having to seek prior FSA approval.

"Before the ban was lifted, prices for insurance policies were virtually the same for each company whether customers bought it via the Internet or from sales representatives," Iwase said. "But from then on, companies were allowed to decide the prices, giving them the motivation to make their business more efficient."

In the postwar era, the insurance industry was protected by regulation because it was a source of capital for infrastructure building, Iwase said.

The government encouraged people to deposit cash in postal savings or purchase insurance policies; those entities would then invest the accumulated capital in infrastructure-related industries, including steel and utilities.

"It all made sense when the economy and the population were growing. And life insurance policies made sense because most women were stay-at-home moms," Iwase said.

But now, he said, economic growth is slow and the population is declining, while many women continue to work after they get married and have children.

"The macro environment has changed drastically, but the suppliers (of life insurance) have not changed," Iwase said. "That's where business opportunity lies."

Lifenet is limiting its products to only death and medical insurance policies so clients can easily understand the policies they purchase.

Iwase said existing life insurers are reluctant to launch online sales, believing it would take business away from their existing sales forces.

"It would also be difficult and costly for them to type in all the data of their clients from the past several decades," he said. "That's why there is an opportunity for companies like ours."

Iwase said the biggest task is to make people aware of the new company and its products.

"We're confident about our product. All we want is for people to know about it," he said, adding that being a notable brand is more important in doing business in Japan than in the U.S.

"Even if it is a good product, Japanese tend to go for a more expensive but well-known brand," Iwase said. "But I think this is changing."



We welcome your opinions. Click to send a message to the editor.

The Japan Times

Article 1 of 4 in Business news

 Next



Back to Top

About us |  Work for us |  Contact us |  Privacy policy |  Link policy |  Registration FAQ
Advertise in japantimes.co.jp.
This site has been optimized for modern browsers. Please make sure that Javascript is enabled in your browser's preferences.
The Japan Times Ltd. All rights reserved.