Aflac's CEO on the History Behind the Duck Commercials | At Barron's

My pleasure.

Well, in the health care system, whether it be national health care in Japan or our health care system in the United States, there are gaps that are created in the health care to try to create some control over expenses. Although it really hadn't been done that much, but that's the idea. And those gaps that are created, people need additional cash to cover those. Whether it be things like co-pays and deductibles or someone goes to a particular area for cancer treatments that are specialized or they're out of work or the spouse is out of work taking care of the loved one. Any of those things, we pay this cash to them and they take that money and fill the gaps that are created. And usually when you put those together with Major Medical, it'll cover most of the expenses that are created in that gap.

Well, John, my uncle, was the principal founder and they looked for a place to go to form the insurance company. And believe it or not, Columbus, Georgia was the biggest city in the south that didn't have an insurance company. There was a little insurance company in every town across the south and we ended up choosing Columbus and they have supported us. And we actually went door to door selling the stock. The Amos family didn't have that much money and so we had to raise capital and that's what took place over that period of years.

Well, Japan. First of all, what happened is John Amos, my uncle, went to Osaka to the World Expo and he noticed a thriving economy. And back then, we know what this means, but we didn't know at that time. He noticed people wearing surgical masks. And he asked why. And they said, well, it was to stop the spread of a cold. And his comment was, 'Anybody that'll do that will buy insurance. I got to get a license there.' And he spent four years working on getting the license. And finally in 1974, we received license and last year was our 50th year doing business in Japan.

Well, I think first of all, they thought they were having back in the early 70s an epidemic of cancer. They weren't. They just weren't living long enough to get it. The life expectancy around right after the war was about 50 something years old. It's now extended to 80 years old. So cancer is a disease of age. The older you get, the higher the incidence rate goes. So people thought it was such a big issue, they wanted to buy something to cover. So we were the second company to be licensed in Japan and we came up conceptually with the idea of offering a life insurance product but it paid 10 times that amount if you died of cancer and then we paid so much a day for every day you're in the hospital. Now from there expanded beyond that but the other thing we were going to do is set it up where we could sell our product within the corporations. So, a Toyota or Miso Bank or whatever it might be, 90% of all the companies on the Tokyo Stock Exchange offer our product to their employees and then we pay the commission to the company and ultimately it's a cycle that works very well for us.

Well, anytime you're in a situation where the population is getting smaller, it's an issue for us. But we've been able to broaden our product lines and come out with new products as well as reinvent the existing product in some new form. For example, with the cancer product now it pays expenses like radiation, cobalt, things along those lines or it does outpatient treatments. We didn't have that originally. So, it's evolved with time with treatments and how they've changed. The other thing is when we started, there were no co-pays or deductibles in Japan in their national health care. It then went from 10% to 20% and now to 30%. And we think again it can go up more. We don't know. But they're trying to take control of their health care costs. Also, the number of days in the hospital in Japan, you went from the hospital directly back to work. In our society, everyone's got an extra bedroom. And so when someone gets sick, you take them from the hospital and bring them home. They didn't do that. So the average number of days in the hospital for cancer treatments back when we started was about 45 days. It was less than eight days and now it's even gotten less in the United States. So that's an adjustment as well.

Yes, I have a succession plan. And what I would say is I backed into it. I loved what I did. I just kept doing it. And one day somebody said, 'I bet you're one of the longest serving CEOs in the country.' And that's the first time I'd really thought about it several years ago when I had passed 30 years as CEO. I thought, 'Well, that's interesting.' But you have to remember long-term CEOs in my world or in your world, it doesn't matter. It's what the numbers ultimately achieve. And so I'm honored to have that, but keeping it, you have to make the numbers, and that's what's important.

That's correct. I've been 36 years and the company's 70 years old.

Okay. Well, we had been trying to figure out how to build name recognition. There are over 200 insurance companies in the United States that start with American. There are over 50 that have family in it. And there is an insurance company called American Family Life Insurance Company. And we're called American Family Life Assurance Company. And we knew that we could never get name recognition by staying where we were. And we had to take some chances and look at different ways. So we had been in the business of trying the advertising and we had about 3% name recognition and it ticked up over a period of 10 years to about 9% but it told me we were never going to get there in my lifetime and that was unacceptable. So we bid it out to different organizations and actually my wife Kathleen was doing it at the time and she found Kaplan Thaler group and these women designed and worked with some of their people that were in creative areas and they said the more we think about this, Aflac sounds like a duck quacking and they came up with the idea of a park bench and having the Aflac duck at that time come up to it. Now, what I have to say about it is it was wild because back then you had Credential in the Rock and you had very conservative things and there weren't any companies doing humor and in our case we were actually making fun of the name and so I was a nervous wreck but I had said I'll try anything as long as it's in good taste. And so we had tested at that time Ray Romano with building duck building blocks with children and it formed Aflac the blocks did and it tested an 18 on this system that we use and on financial services usually doesn't do well on those type of issues. But insurance is even worse because with financial you get banks and banks, the more repetitiveness of dealing with the consumer, the higher your name recognition will grow. Well, in the case of insurance, you don't need it unless there's a claim to be paid. So, you may go for years and not even know the name of your insurance company if you do it in an employer employee setting. And that's what we had. So we said we got to do something different. So we tested the Aflac duck. It tested a 27, three times higher than anything we'd ever tested before. And we decided to go with it. We tested it January 1, 2000. And on that day, if you'll remember, they thought there was going to be a shutdown because it was Y2K and everyone was scared to death. Well, nothing happened. And one of the places we had advertised heavily was CNN. And so they didn't have anything to run because there wasn't any news. And it ran over and over again. And it ended up working out great. I majored in risk management and insurance in school. And the things about it are three principles of risk management is don't risk a lot for a little, don't risk more than you can afford to lose and consider the odds. And when we use that as a way of looking at it, we decided to go with it. But I have to tell you, one of my good friends that was the CEO at the time, I asked him what he thought because the Ray Romano had tested 50% higher and he said, 'No one's ever gotten fired for doing 50% better. Go with the Ray Romano.' But I promised I would do whatever tested the highest and so we went with it. So it ended up working great and to this day our name recognition is around 90%. And if you think about that for the amount of money we spend, which is relatively small, we spend about 150 million compared to say Geico that spends three billion. There's a lot of money spent out there that's predominantly property casualty. But in our business, it catapulted us and then we took it to Japan and that's another story.