Winners / Selection Rationale

HOKEN NO MADOGUCHI GROUP INC.

2018 18th Porter Prize Winner Insurance agent
Hoken No Madoguchi Group Inc., an insurance agent company, has created a totally new approach to sales in the retail insurance market, by committing to a customer-centric approach. Staff members actively listen to customers, to understand their specific needs, and then recommend the insurance products that best meet those needs. Staff members can chose from among the broad selection of insurance products on the market, regardless of whether the insurance companies are conducting any sales promotion campaigns. (In Japan, insurance agents are usually affiliated with one insurance company. Therefore, agents will frequently sell the insurance products of only one company. Hoken No Madoguchi operates independently of the insurance companies.)

General features of insurance agent in Japan

img_2018_01_p1.jpg Sales of insurance products are conducted either by the employees of insurance companies, such as the sales representatives of life insurance companies, or by agents. (In Japan's life insurance industry, the common practice was for an insurance company's sales representatives to approach individuals at their workplace, and deliver a sales pitch for their company's insurance products. This was the dominant sales channel for life insurance in Japan until 2005, when the Law Concerning the Protection of Personal Information made it difficult for the sales representatives of insurance companies to call on individuals at their workplaces.) Insurance agents include exclusive agents who represent only one insurance company, and other agents that sell insurance products from several insurance companies. Other agents include: (1) specialized agents (such as "Life Planners," dedicated agents who exclusively represent a single foreign life insurance company; insurance agents who represent casualty insurance companies; online insurance shops; insurance agents that make sales calls; and insurance agent shops that do not make sales calls); and (2) part-time agents, whose main business is something other than an insurance agency (e.g., banks, automotive dealers, and auto-repair shops). Following the deregulation of the insurance industry, new entrants have led to this market's further diversification in recent years. Insurance agents can sell both life insurance and casualty insurance, depending on the terms of the agent agreement that has been signed with each insurance company. These days, other agents will often have signed agent agreements with about 40 insurance companies, (including both life insurance and casualty insurance companies).(*1) Meticulous explanations are necessary in the selling of insurance products--customers must understand well the breadth of policy coverage and insurance conditions. Recently, the Japanese authorities prohibited sales activities by third-party sales representatives not regularly employed by insurance agents. The reason behind this prohibition was to require insurance agents to improve their communication with customers, reflecting growing concerns regarding the education of staff members and the monitoring capabilities of the insurance agents.

img_2018_01_p2.jpgJapan's life insurance market is the second largest after the U.S., with annual premiums written totaling about 40 trillion yen (US$353.3 billion). The casualty insurance market amounts to about 8 trillion yen (US$70.6 billion) per year. According to research(*2) conducted by the Japan Institute of Life Insurance, 88.7% of Japanese households have life insurance, which is one of the highest rates in the world. On average, a single household has 3.9 life insurance policies, and pays insurance premiums totaling 382,000 yen (US$ 3,375) per year. Still, only 21.9% of households have purchased personal pension insurance; 14.1% have bought nursing care insurance plans or nursing care special contracts; and 12.0% have disability income replacement insurance or some other type of insurance. The main channel for consumers wanting to obtain information regarding insurance products was the sales staff of insurance companies (46.5% of respondents), followed by insurance agents (15.8%). The channel from which the respondents purchased their most recent insurance product was the sales staff of insurance companies (53.7% of respondents), agents (17.8%), online or through a mail-order business (6.5%). Only 30.5% of respondents indicated that they are "knowledgeable about life insurance and personal pension insurance products," while 66.6% replied that they "know almost nothing." The results of this survey indicate that most people do not have confidence in their understanding of complicated life insurance products. Also, only 46.1% indicated that their insurance coverage is "sufficient," while 35.5% replied "insufficient." According to the same survey, the amount of insurance premiums that respondents felt they could afford to pay per year per household totaled 343,000 yen (US$ 3,030) on average, and this was lower than the amount of their actual premiums. Combining these two pieces of information, it seems that most households need to decrease the insurance coverage they already have, and reallocate funds to areas deemed insufficient.

(*1) There were 41 life insurance companies in Japan as of October 2018. Of this total, 14 are Japanese subsidiaries of foreign companies; 4 are subsidies of casualty insurance companies; and 2 are insurance companies that sell insurance online, directly to customers. In casualty insurance, there are 26 companies, and the leading three groups dominate 88% of the market.

(*2) Japan Institute of Life Insurance, Heisei 30 nendo seimei hoken ni kansuru zenkoku jittai chousa sokuhouban (National fact finding survey on life insurance 2018--Flash Report, September 2018) (in Japanese).

Unique Value Proposition

Hoken No Madoguchi Group operates Hoken No Madoguchi shops. There are 405 directly owned shops, 235 franchise shops, and 75 shops in 22 affiliated banks (as of June 30, 2018). With annual sales of 37.2 billion yen (US$328.7 million), the company ranked number one among the insurance agents that published financial results in fiscal year 2017. Hoken No Madoguchi sells the insurance products of 27 life insurance companies and 16 casualty insurance companies. The best-selling products in fiscal year 2017 were: medical insurance, which accounted for the largest number of policies (24% of total sales); insurance for cancer and three major diseases (18%); automotive insurance (17%); whole life insurance (13%), fire and earthquake insurance (12%); term life insurance (8%); other casualty insurance (5%); pension plans, endowment life insurance policies, and educational endowment insurance plans (3%); disability and income replacement insurance (1%); and nursing care insurance (0.4%). Out of the 238 life insurance products that Hoken No Madoguchi offers, 237 products were sold. (*3)

Customers learn about Hoken No Madoguchi Group through advertisements in the mass media, at shops located on high-traffic streets, and by word of mouth (i.e. recommendations from existing customers). Hoken No Madoguchi does not segment customers according to age group, family makeup, or annual income. The company's staff members do not make sales calls to encourage prospective customers to consider purchasing insurance products. The company focuses on customers who are willing to visit Hoken No Madoguchi shops on their initiative. Such motivated individuals are already aware of the need for insurance coverage and the risks involved.

The value proposition of Hoken No Madoguchi is: (1) helping customers to identify the true source of their sense of uneasiness with regard to the future; (2) facilitating a deeper understanding of the risks they might eventually face; and (3) assisting customers in their selection of appropriate insurance products. The company views its sales activities at Hoken No Madoguchi shops not as "sales," but rather as a chance for "collaboration with customers, helping them to clarify their thinking and voice their concerns." These meetings with customers are accordingly called "consultations." In these meetings, the staff members are referred to as "Life Partners." During consultation meetings, the "Life Partners" actively listen to customers, and help customers learn about insurance products without using any technical terms. The aim is to help customers develop a clearer understanding of their values, future plans, and sources of uneasiness; and a proper understanding of insurance products. Customers can then make an appropriate selection, based on their needs and the amount that they can afford to spend.

On average, each consultation meeting takes about two hours. Most customers require two or three meetings before signing a contract. About 55% of the customers who visit Hoken No Madoguchi Shop purchase an insurance product. This performance is impressive, even taking into consideration the fact that customers who visit the company's shops are already aware of their needs. In contrast, the top-selling sales staff employed by life insurance companies, who make sales calls to prospective customers, can only achieve a contract rate of 7-8%, on average. Following the conclusion of a sales transaction, the customer will receive an insurance policy in the mail. After the policy has arrived in the mail, a company representative will contact the customer, and invite that person to stop by the shop. The company wants to make sure that the customer is satisfied with the policy's contents. This "follow-up" approach is called the "3 + 1" (three plus one) practice. (This follow-up meeting is the fourth consultation meeting after the three meetings held prior to the conclusion of a sales transaction.) About 70% of customers contacted by the staff members actually visit the shop again for a follow-up visit.

The second value proposition is providing customers with a long-term relationship and continuous customer care. Customers need to update their policies, with a change of address, for example. Customers send requests for payment, and provide the information required for payment. Other customers want to confirm that their coverage is still sufficient when their lives change unexpectedly, or when they suddenly face new uncertainties or challenges in their lives. Each year, two months before a customer's birthday, Hoken No Madoguchi will send a letter, Anshin No Wa Teikibin (lit. translation - "Circle of Reparation" Regular Notification) to encourage customers to confirm that they have sufficient insurance coverage. The company keeps its shops open 365 days a year, allowing customers to stop by at their convenience. Haken No Madoguchi aims to be a friendly presence in the neighborhood, and encourages customers to stop by anytime. The company's broad network of shops, which totals 700 nationwide, provides a physical base for a long-term relationship with customers, even those who move to a house in a different area. One-fourth of the customers who visit a Hoken No Madoguchi shop for a consultation are existing customers. In 2017, the company had 812,000 customer meetings, of which 662,000 were "consultations." The rest of the meetings were for existing contracts, to update policies, and do paperwork to request payment. Out of 662,000 consultations, 499,000 were with new customers, and 163,000 were with existing customers. (*4) The company sells two insurance products to each customer, on average. In 2017, the company sold 1.94 million insurance products to 927,000 customers. (*5)

Hoken No Madoguchi enjoys a high customer retention rate. For those customers who have made regular payments on their life insurance policies for 25 months, the retention rate is 95.4%. For those who did so for 37 months, the retention rate is above 93%. Both of these rates are above the industry average by a wide margin. As for automobile insurance, 90.4% of the customers renewed at Hoken No Magoduchi upon expiration after one year. (*6)

(*3) Hoken No Madoguchi Group, Okyakusama ni totte saiyuu no kaisha sengen ni kansuru gohouoku, Sept. 28, 2018.
(*4) Hoken No Madoguchi Group, Value Report 2018, p.21
http://www.hokennomadoguchi.co.jp/about/pdf/ValueReport2018.pdf(accessed on November 1, 2018)
(*5) Ibid. p.21
(*6) Ibid. p.22

Unique Value Chain

The unique features of Hoken No Madoguchi's value chain is its "consultation meetings" and its approach to human resource management. These activities support its customer-centric understanding of customer needs and the selection of insurance products.

Purchase
Hoken No Madoguchi Group has concluded agency agreements with 27 life insurance companies and 16 casualty insurance companies. The company can meet the minimum sales requirement of these companies while respecting the choices made by customers because Hoken No Madoguchi can spread the sales over its 405 directly managed shops, at very least. The company can also enjoy the higher commissions that are often granted to high-performing agencies (i.e., achieving high-volume sales and realizing high-quality administrative operations).

Acquisition of new customers
Because Hoken No Madoguchi Group does not make sales calls, the company has to find other ways to raise customer awareness and encourage prospective customers to visit its shops. The company opens shops on streets with high foot traffic, invests in mass media advertising, utilizes the local media, and conducts web-based marketing. Ten percent of new customers were recommended by existing customers. Also, repeat visits by existing customers have been increasing by 20% every year.

Consultation meetings
Hoken No Madoguchi Group calls its meetings with prospective and existing customers "consultation meetings." Rather than focus on making a successful product sales pitch, the highest priority of staff members is to actively listen to customers as they talk about their concerns. The goal is to help customers clarify their true needs. When the company's "Life Partners" finally talk, their role is to help customers understand the kinds of insurance products that are available, without using technical terms. As a result, each consultation meeting takes two to three hours, and a customer needs two to three meetings, on average, before signing a contract. This is a long process, but customer satisfaction is high, and more than 50% of customers who visit a Hoken No Madoguchi shop buy some kinds of insurance product.

Hoken No Madoguchi has developed its own proprietary software, known as the "Life Design System." The software guides the staff member through the process of inquiring about the customer's situation, and confirming the customer's needs. Based on the input created through this process, the software will recommend an appropriate selection of insurance products, from which the customer may choose.

Continuous customer care
After the customer receives an insurance policy in the mail, a representative of the Hoken No Madoguchi Group will contact that person to encourage a visit to one of the Hoken No Madoguchi shops. The staff member wants to confirm that the customer is happy with the insurance purchased. (This is what the company calls its "3+1" practice.) Also, the company encourages customers to make periodic visits to the Hoken No Madoguchi shops to make sure that their insurance coverage is still adequate. A staff member receives an update from the customer regarding life changes and their attendant risks. By establishing a long-term relationship with customers, the company can enjoy a high customer retention rate. It is trying to be "truly customer-centric" by serving customers for their entire lives, thus completing the customers' Anshin No Wa (lit. translation - "Circle of Reparation."

Hoken No Madoguchi Group has developed a database of customers and insurance policies, making full use of the company's proprietary system for insurance contract management and customer relationship management.

Development of Hoken No Madoguchi shop network/alliances
The Hoken No Madoguchi Group has expanded its nationwide network of shops faster than its competitors. This rapid expansion has been supported by the training system it has created to help employees improve their active listening skills. The company has also developed a highly successful approach to customer consultations, as well as extremely effective shop operations. In addition, the company employs a franchise system for increasing retail outlets, which are now called "partner shops." The company has also added outlets by forming alliances with banks.(*7)

Human resource management
Hoken No Madoguchi Group recruits from outside the insurance industry, and provides training using the company's proprietary program. The company had 3,100 employees at the end of 2017 (more than 5,000 if partner companies that operate partner shops are included). The company is committing the maximum human resources, assets and money to employee training.

In July 2013, Hoken No Madoguchi Group adopted the corporate philosophy of being "an excellent and the most caring company for customers," and changed the goal of its training program from "selling more" to "mastering the (correct) mindset and skills." New employees attend an intensive five-day training program. Upon completion of this program, the new employees then undergo two months of preliminary basic training, conducted in Tokyo, Osaka and Nagoya. The primary focus of this two-month training period is to help new employees develop the mindset and skills they will need in their face-to-face dealings with customers. They must perform their duties conscientiously and cordially. Employees practice by taking part in role-playing exercises, to learn the skills necessary for successfully fulfilling "the Seven Requirements for Being Open with Customers." All the employees of partner shops and affiliated banks who work at the insurance counter are required to complete these two training programs.

The Seven Requirements for Being Open with Customers (*8)
  1. Our work starts by actively listening, to identify our customers' true intentions.
  2. Our basic job is to put ourselves in our customers' shoes.
  3. Our responsibility as a business is to meet our customers' expectations.
  4. We measure our business performance by how successful we are
  5. earning our customers' appreciation.
  6. Our goal as a business is to achieve a high level of customer satisfaction.
  7. We find pleasure in our work by assisting customers and inspiring them.
  8. Our work is finished when the customer says, "Thank you."
After the employees have started working at a Hoken No Madoguchi shop, they are encouraged to share their "best practices." The company puts a priority on creating a corporate culture of "mutual cultivation." To get a promotion, employees must acquire the necessary certifications, such as the national certification for financial planners.

In the insurance industry, it is standard practice to try to motivate the sales staff to sell as much insurance as possible by pegging their remuneration to their previous-month sales performance results. In 2015, Hoken No Madoguchi Group changed the remuneration system to one based on previous-year evaluations, which include sales performance. Employee evaluations are based on qualitative and quantitative key performance indicators (KPIs), which are derived from the performance goals set by each shop. In order to develop its workforce, the company puts a heavier weight on qualitative performance as employees reach the higher ranks. Qualitative evaluations now account for close to 90% of employee performance evaluations.

(*7) The insurance products available at the shops at affiliated banks are limited, compared with the products offered by directly owned shops and partner shops. When customers are interested in such products, they are encouraged to visit a directly owned shop or a partner shop.
(*8) Hoken No Madoguchi Group, Value Report 2018, p.2

Fit among Activities

Hoken No Madoguchi Group made three choices that are central to its competitive strategy: (1) Create a trusting environment for customer consultations by refusing to side with an insurance company and push insurance products that are not in the customers' best interest; (2) communicate honestly with customers in consultation meetings; and (3) operate a network of ubiquitous shops, thus making the company's services easily accessible to all customers. Thanks to a broad product lineup and a consultation process that is not influenced by the sales promotion campaigns of insurance companies, Hoken No Madoguchi can offer customers a safe environment for consultations. Customers can be confident that the staff members do not select products for recommendation merely because of the substantial commissions such a sale might generate for insurance companies or Hoken No Madoguchi Group. Under such circumstances, it is possible to engage in honest communication during consultation meetings.

In hiring, the company targets individuals without any background in insurance sales, and makes it a practice to hire people from outside the insurance industry. Hoken No Madoguchi trains its staff members to develop their active listening skills. Employees are encouraged to adopt a customer-centric focus. The company also has established stable structures for work evaluations and employee remuneration. (Pay levels are fixed, and remuneration is no longer so dependent on an individual's ability to meet sales volume targets.) The large number of shops opened nationwide, as well as proprietary customer relationship management and insurance contract management systems make it possible for the Hoken No Madoguchi Group to serve customers without depending on the person in charge. Moreover, the company is able to cultivate long-term relationships with customers who must move to a new home in a different location.

By pursuing excellent customer service, the company has developed high-quality business operations that have contributed to the improved efficiency of insurance companies. The company can honor agency agreements that specify minimum requirements for sales volume without having to pitch any specific insurance products to clients for the sake of meeting sales quotas. (Please refer to Hoken No Madoguchi Group's activity system map, which appears at the end of this report.)

Innovation that Enabled Strategy

  • Has developed a customer-centric process for insurance product selection and enrollment in an insurance plan. The standard practice in the insurance industry was for sales representatives to make sales calls on prospective customers by visiting them at their homes or offices, to discuss insurance products and raise their awareness of the need for sufficient insurance coverage. At Hoken No Madoguchi, customers visit the company's shops on their own initiative. Through consultations with staff members, customers can gain a deeper understanding of their specific insurance coverage needs, and select an appropriate product that meets their needs.
  • Has created a human resources management system under which the staff of all Hoken No Madoguchi directly-managed shops are company employees. Under this system, employees face much less pressure to meet specific sales quota targets, unlike other salespeople working in the insurance industry.
  • Has stimulated a new consumer behavior with regard to the purchase of insurance products (i.e., that act of visiting the shops of Hoken No Madoguchi agents to buy insurance). The company was able to bring about this major change in consumer behavior by first educating all employees (not only the company's employees, but also all the individuals employed at partner shops and affiliated banks). The result of this training is that customers can enjoy consistently high-quality consultation services. The company has been able to develop a reputation for good service, while expanding its network of retail outlets through a significantly lower capital commitment.

Trade-offs

  • Does not consider "the selling of insurance products" its primary business activity. Instead, the company defines its mission as: "Delivering peace of mind and security, smiles and happiness through the provision of insurance products." Accordingly, achieving sales targets on a volume basis is not the ultimate goal. "Life Partners" sometimes do not sell insurance products, recognizing that the customer already has sufficient insurance coverage. Employees at Hoken No Madoguchi are not rewarded for meeting sales targets. The majority of employees (including Life Partners) have fixed salaries. The company does not have each staff member compete in terms of sales performance. Rather, it takes into account the sales performance of individual shops and regional blocks, and views this as the aggregate (sum) of each staff member's performance. Hoken No Madoguchi is one of the best-selling agents for many insurance companies. However, the company does not participate in the sales award ceremonies held by insurance companies.
  • Is not an "agent" that sides with the insurance companies. As a provider of insurance products, the company remains an independent entity. Hoken No Madoguchi aims to satisfy both customers and insurance companies.
  • Does not ask "Life Partners" to be responsible for new customer acquisition. Various practices are developed at the headquarters and in the shops to increase brand awareness. Individual "Life Partners" are not required to boost new customer acquisition numbers.
  • Does not react to the sales promotion campaigns of insurance companies because such sales promotion campaigns go against the company's policy to adopt a "customer-centric" approach. After actively listening to the customer and identifying specific needs, a staff member explains about the various insurance products available, and lets the customer select a product.
  • Does not hire individuals from within the insurance industry. Because the company takes a unique approach to sales and human resource management, it is very different from the other companies in the industry. It is not easy to re-educate individuals who have been trained by other companies. The company has developed an in-house training program for people who do not have experience in the industry.
  • Does not try to motivate employees by setting sales volume targets or quotas. Hoken No Madoguchi does not make insurance sales its ultimate objective. Accordingly, in employee performance evaluations, an extremely small weight is placed on the individual's contribution to insurance product sales. This is a departure from the standard industry practice. Because adoption of this system would result in lower salaries for the high-earning sales staff employed under the conventional remuneration system, companies that employ a performance-based payment system would have difficulty switching over to this remuneration system.

Consistency of Strategy over Time

The 1996 amendments to the new insurance business law allowed life insurance companies to create subsidiaries to develop and sell casualty insurance, and vice versa for casualty insurance. This amendment also liberalized product design and prices for insurance companies, marking the beginning of the industry's deregulation. It also created "insurance brokers," who, for the first time, could sell the products of many different insurance companies. Then, in 2001, banks were allowed to start selling insurance products. Hoken No Madoguchi Group opened its first shop in 2000 in Kohoku Newtown, in Yokohama City, Kanagawa Prefecture. The staff of this very first shop did not make sales calls. Instead, the staff members waited for customers to stop by the shop and make inquiries. The staff members provided information on a variety of products, enabling customers to compare the products of different insurance companies. Around the same time, the company developed a basic style of consultation meetings, which is one that anybody can master with some effort.

The company has raised customer awareness by using advertisements and other means, instead of sales calls. The physical media has been evolving over time as the company has grown in size. Until the mid-2000s, when the company did not have so many shops, advertisements were put in free papers that featured classified ads. The company's aim was to reach the local community. After the mid-2000s, as the number of shops increased and geographic coverage expanded, the company gradually began advertising more frequently through TV and other mass media. Recently, it has added web-based marketing, and has also introduced an online appointment service through smartphones. In the early years, shops were located on the second or third floor of buildings located on smaller streets, to take advantage of cheaper rent levels. After the mid-2000s, the company began opening shops on high-traffic pedestrian streets and high-visibility areas, such as shopping centers and commercial buildings in front of train and subway stations.

In April 2013, Yasuhiko Kubota, then chairman of the company, became chairman and president. He set the goal of changing the company to become thoroughly customer-centric, and launched the "21 Management Reforms," while urging his staff to make no presumptions about anything. Under this initiative, Hoken No Madoguchi Group developed and practiced a customer-centric approach, which focused on clarifying customers' needs and facilitating the product selection process through "consultation meetings." In such meetings, the staff members were not expected to "sell" (aggressively push) insurance products. He also adopted a policy of not being swayed by the sales promotion campaigns of insurance companies. In addition, he introduced a fixed pay salary structure.

Profitability

Hoken No Madoguchi Group's five-year average of the return on invested capital (ROIC) exceeded the industry average by a wide margin. The return on sales (ROS) underperforms the industry average slightly. Competitors' profits include sales of an enterprise management system for insurance agents. (Profitability analysis was conducted by PwC Japan.)

Activity System Map of Hoken No Madoguchi Group

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