AFLAC Inc.

706-323-3431

1932 Wynnton Road

Columbus, GA 31999

www.aflac.com.
 

Sales

$11.5 billion

Business Description 

AFLAC Incorporated's principal business is supplemental health and life insurance, which is marketed and administered primarily through its subsidiary, American Family Life Assurance Company of Columbus (AFLAC). AFLAC operates in the United States (AFLAC U.S.) and as a branch in Japan (AFLAC Japan).  

Most of our insurance policies are individually underwritten and marketed at worksites through independent agents, with premiums paid by the employee. We believe AFLAC is the world's leading writer of individually issued policies marketed at worksites. We continue to diversify our product offerings in both Japan and the United States.  AFLAC U.S. sells cancer plans and various types of health insurance, including accident and disability, fixed-benefit dental, personal sickness and hospital indemnity, hospital intensive care, long-term care, and short-term disability plans. We also offer several life insurance plans in Japan and the United States.

We are authorized to conduct insurance business in all 50 states, the District of Columbia, several U.S. territories and foreign countries

Insurance Products - U.S.

We design our U.S. insurance products to provide supplemental coverage for people who already have major medical or primary insurance coverage. Our health insurance plans are guaranteed-renewable for the lifetime of the policyholder (to age 70 for short-term disability policies). We cannot cancel guaranteed-renewable coverage, but we can increase premium rates on existing and future policies by class of policy in response to higher than originally expected claims experience (subject to federal and state loss-ratio guidelines) on a uniform, nondiscriminatory basis. Any premium rate increases are subject to state regulatory approval. With the exception of our Medicare supplement product, which is a closed block of business, we have had minimal rate increase activity in the last five years.

AFLAC U.S. offers an accident and disability policy to protect against losses resulting from accidents. The accident portion of the policy includes lump-sum benefits for accidental death, dismemberment and specific injuries as well as fixed benefits for hospital confinement. Optional disability riders are also available. Short-term disability policies provide disability benefits with a variety of elimination period/benefit period options. The longest such benefit period offered is two years. During 2003, we began introducing revised versions of our accident and disability products throughout the United States. Accident/disability coverage continued to be our best-selling product category, accounting for 51% of total sales in 2003, 51% in 2002 and 52% in 2001.

Our U.S. cancer plans are designed to provide insurance benefits for medical and nonmedical costs that are generally not reimbursed by major medical insurance. During 2003, we also began introducing a revised version of our cancer product. Benefits include a first-occurrence benefit that pays an initial amount when internal cancer is first diagnosed, a fixed amount for each day an insured is hospitalized for cancer treatment, and benefits for medical, radiation, chemotherapy, surgery and a "wellness" benefit applicable toward certain diagnostic tests. Cancer expense insurance accounted for 20% of total sales in 2003, 21% in 2002 and 24% in 2001.

In 2002, we introduced a personal sickness indemnity plan, which provides a fixed daily benefit for hospitalization due to sickness and physician services for accident or sickness. Our hospital indemnity product provides a fixed daily benefit for hospitalization due to accident or sickness. Our hospital indemnity product category, which includes these plans, contributed 11% of total sales in 2003, 10% in 2002 and 6% in 2001.

We also offer a series of fixed-benefit dental policies, providing various levels of benefits for dental procedures, including check-ups and cleanings. Plan features include a renewal guarantee, no deductible and a choice of dentist. The policies are portable and pay regardless of other insurance. Our dental insurance generated 7% of total sales in 2003, 2002 and 2001.


AFLAC U.S. offers term and whole life policies sold through payroll deduction at the worksite and various term and whole life policies on a direct basis. We also offer other health insurance products including qualified and non-qualified long-term care plans, a hospital intensive care policy, and a specified health event policy. These products individually contributed less than 5% of total sales in each of 2003, 2002 and 2001.
 

Distribution - U.S.

Our U.S. sales force comprises independent sales agents who are licensed to sell accident and health insurance. Many are also licensed to sell life insurance. Most agents' efforts are directed toward selling supplemental health insurance at the worksite. The average number of U.S. agents actively producing business on a monthly basis during 2003 was 17,200, compared with 15,800 in 2002 and 13,000 in 2001.

During 2003, we took several steps to enhance our distribution system by expanding the field management network that supports our sales force. For further information regarding changes in our U.S. distribution system, see Exhibit 13, page 13-15 (AFLAC U.S. Sales section of MD&A), which is incorporated herein by reference.

Agents' activities are principally limited to sales. Administrative personnel in Columbus, Georgia; Albany, New York; and Omaha, Nebraska, handle policyholder service functions, including issuance of policies, premium collection, payment notices and claims. Agents are paid commissions based on first and renewal-year premiums from their sales of insurance products. State, regional and district sales coordinators are also independent agents and are compensated by override commissions and bonuses.

We have concentrated on marketing our products at the worksite. This method offers policies to individuals through common media such as employment, trade and other associations. This manner of marketing is distinct from the "group" insurance sales approach, as our primary method of enrollment results from the individual insured being directly contacted by the sales associate. Policies are individually underwritten, with premiums generally paid by the employee. Additionally, AFLAC policies are portable, meaning that individuals may retain their full insurance coverage upon separation from employment or such affiliation, generally at the same premium. A major portion of premiums on such sales are collected through payroll deduction or other forms of centralized billings. Worksite-marketing enables the agency force to reach a greater number of prospective policyholders and lowers distribution costs, compared with individually marketed business.

Another valuable marketing and sales tool is the flexible benefits program, or cafeteria plan, which allows an employee to pay for many of AFLAC's products using pretax dollars. These programs help achieve increased penetration, as agents are required to present the program to all employees in a payroll account.

Ticker

AFL

SIC Code

6321 - Accident & Health Insurance

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