ipet Holdings 7339
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2021-11-10
2021-09-13
2021-05-27
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Summary
ipet Insurance is Japan’s second-largest provider of pet insurance. The company differs from other pet insurance companies in three main ways.
a) Categorized as a “non-life” insurer: Most pet insurance companies are small-amount, short-term insurance companies that register with local Ministry of Finance bureaus and have a capital requirement of JP10mn. Being categorized as a non-life insurer, ipet is licensed by the Financial Services Agency and has a minimum capital requirement of JPY1.0bn. ipet is also a member of the Non-life Insurance Policyholders Protection Corporation of Japan, which functions as a safety net for policyholders. b) Over-the-counter payouts: Like industry leader Anicom Holdings (TSE1: 8715), insurance payouts are settled over the counter at major animal hospitals around Japan. c) Online sales channels: The company has cultivated fast-growing online channels. Expertise in this area has helped keep the overall loss ratio under control and secure profits.
Insurance
Key dates
2019-01-28
Coverage initiation
Executive summary
Business overview
In October 2020, ipet Holdings was established as the wholly owning parent of ipet Insurance Co., Ltd., through a single share transfer. The company’s core subsidiary, ipet Insurance, sells pet insurance and has a market share in the pet insurance industry of nearly 27%, second only to Anicom Holdings, which has a market share of 40.5%. ipet Holdings’ only reporting segment is the Nonlife Insurance business, which accounted for 98.9% of recurring revenue and 96.5% of recurring profit in FY03/21.
The company sells its mainstay pet insurance to general consumers, especially pet owners, to cover a certain percentage of the cost of surgery or other medical treatment for illness or injury, mainly for dogs, cats, and other pets kept in households (policy length is one year). This insurance is similar in function to medical insurance for humans (third-sector insurance), but the Insurance Business Act defines it as “insurance to cover damages suffered by the policyholder due to accident” (nonlife insurance). Products covering the risk of injury to pets were originally operated by mutual aid associations. The predecessor of ipet Insurance was established in 2004, but the earlier mutual aid associations were reorganized into nonlife or small-amount short-term insurers following a 2005 revision of the Insurance Business Act. Companies competing in the pet insurance industry include five nonlife insurers licensed by the Financial Services Agency (including the company itself) and 10 small-amount short-term insurers registered with Local Finance Bureaus.
The pet insurance sales and underwriting business, which is the company’s main business, is a recurring-revenue business in which the company collects premiums monthly from policyholders. Revenue can be explained in terms of the policy count and premium amount, but profits are affected by insurance accounting. The company first books premium revenue, and insurance payouts (cost of revenue) occur later, with unearned premiums for the next and subsequent insurance periods being carried forward as underwriting reserves, so profits straddle fiscal years. In the case of ipet Insurance, the number of policies in force is increasing rapidly, and Shared Research understands that it will remain difficult for the company to generate accounting profits for the time being. It will be important to maintain or even improve the policy renewal rate and increase productivity.
The following are some key points that differentiate ipet Insurance from competitors: 1) it is a nonlife insurer licensed by the Financial Services Agency (with good credibility as a listed company), 2) it is a member of a safety net called the Non-life Insurance Policy-holders Protection Corporation of Japan, 3) it is able to provide over-the-counter settlement services at major veterinary hospitals nationwide alongside industry leader Anicom Holdings (TSE: 8715, a nonlife insurer), and 4) it has experience and expertise in developing online channels, which are seeing rapid growth (its accumulation of expertise has allowed the company to control the overall loss ratio and secure profits).
ipet Insurance has grown to hold a 27% market share in the pet insurance industry with more than 600,000 policies in force as of FY03/21. Hereafter, the company will focus on restructuring its management base as it works to complement its pet insurance and produce derivative products with the aim of diversifying its Nonlife Insurance business. The company established a pure holding company (ipet Holdings, Inc.) on October 1, 2020, and now plans to establish group companies based on appropriate procedures.
In May 2021, the company formulated and disclosed a new medium-term management plan, positioning the next three years as a phase for laying the groundwork for new growth. It is targeting FY03/24 recurring revenue of JPY37.3bn, adjusted recurring profit of JPY1.4bn, and adjusted net income of JPY910mn, based on the assumption that it can reach 884,000 policies in force. Together with the medium-term plan, the company also announced new KPIs. To its conventional KPI (number of policies in force), it has added lifetime value (LTV), policy acquisition cost (PAC), and internal rate of return (IRR), for a total of four indicators it will use in evaluating performance. It intends to calculate its business value as (LTV per policy) x (average remaining years / average years of renewal) x number of policies in force to date + (LTV per policy – PAC per policy) x (projected increase in number of policies in force).
Earnings trends
In FY03/21, the company posted recurring revenue of JPY22.9bn (+24.8% YoY), recurring profit (non-GAAP) of JPY401mn (‑15.9% YoY), adjusted recurring profit (non-GAAP) of JPY1.1bn (+5.8% YoY), and adjusted net loss (non-GAAP) of JPY195mn (versus net profit of JPY726mn in FY03/20). Since ipet Holdings was established as the wholly owning parent of ipet Insurance Co., Ltd., through a single share transfer on October 1, 2020, the company’s first fiscal year runs from October 1, 2020–March 31, 2021.
The company’s FY03/22 forecast calls for recurring revenue of JPY28.6bn (+25.0% YoY), adjusted recurring profit of JPY880mn (-21.4% YoY), and adjusted net income of JPY580mn. The projected increase in recurring revenue will be due to an expected increase in insurance underwriting income, while the projected decrease in adjusted recurring profit will be due to an expected increase in business expenses related to the promotion of digital transformation (DX).
Strengths and weaknesses
ipet Holdings’ strengths include 1) the fact that OTC insurance payouts are an entry barrier, 2) it is a pioneer of online channels, and 3) it has a low-priced product that enables sales expansion without cannibalization. The company’s weaknesses include 1) an unchanged product design since its founding, 2) effect of reserves on recurring profit, and 3) inadequate management resources.
Shared Research believes ipet has the following attributes:
Strong market position in growing online channels
Product mix that enables sales growth of low-priced products without fear of cannibalization
Ability to strengthen business foundation and pioneer new markets through CRM
Potential to improve business efficiency (many inefficiencies in current business processes)
Key financial data
Trends and outlook
Quarterly trends and results
Notes: Net loss ratio = (Net claims paid + loss adjustment expenses) ÷ net premium revenue
E/I loss ratio = Incurred loss ÷ earned premiums
Incurred loss = Net claims paid for the current financial year +loss adjustment expenses + provision for reserve for outstanding losses and claims
Earned premiums = Underwriting revenue minus provision for underwriting reserves (unearned premiums basis)
The company transitioned to a holding company structure on October 1, 2020, so Q3 FY03/21 was its first consolidated accounting quarter since it was established.
Note: The company transitioned to a holding company structure on October 1, 2020, so Q3 FY03/21 was its first consolidated accounting quarter since it was established.
Note: The company transitioned to a holding company structure on October 1, 2020, so Q3 FY03/21 was its first consolidated accounting quarter since it was established.
Note: The company transitioned to a holding company structure on October 1, 2020, so Q3 FY03/21 was its first consolidated accounting quarter since it was established.
Note: The company transitioned to a holding company structure on October 1, 2020, so Q3 FY03/21 was its first consolidated accounting quarter since it was established.
Note: The company transitioned to a holding company structure on October 1, 2020, so Q3 FY03/21 was its first consolidated accounting quarter since it was established.
1H FY03/22 results
Key Points
Steady growth in insurance policies resulted in recurring revenue expanding 27.5% YoY. Adjusted recurring profit increased 25.8% YoY due to steady expansion in new policies and somewhat narrower-than-expected increase in the loss ratio, leading to higher revenue and profits YoY. An increase in investment revenue also contributed to higher profits.
From FY03/21, the company disclosed new earnings evaluation parameters. In October 2020–September 2021, lifetime value (LTV) per policy was JPY63,760, policy acquisition cost (PAC) per policy was JPY19,780, and group internal rate of return (IRR) was 40.7%.
Number of policies in force
The number of policies in force was 678,532 at the end of September 2021 compared to the company plan of 723,000. The renewal rate was down slightly, falling 0.6pp YoY to 88.7%, following product revisions introduced in May 2021. Average monthly net increase in the number of policies was 18,821, exceeding 18,256 of 1H FY03/21.
Loss ratio
The quarterly E/I loss ratio in Q2 (based on earned premiums) of 54.6% was up 1.7pp YoY, reflecting an expansion in insurance payouts in line with increases in the number of insurance claims and costs per claim. Even so, the degree of increase in the E/I loss ratio was below company expectation.
Expense ratio
The quarterly expense ratio (based on earned premiums) of 42.8% was down 1.4pp YoY.
Topics
The company began recruiting tenants for pet-friendly rental apartment PetimoQ.
Outlook for FY03/22
The company’s earnings forecast for FY03/22 is recurring profit of JPY28.6bn (+25.0% YoY), adjusted recurring profit of JPY880mn (-21.4% YoY), and adjusted net income of JPY580mn. The increase in recurring profit reflects forecast growth in insurance underwriting revenue, while the expected decline in in adjusted recurring profit reflects an increase in costs due to the rollout of the company’s DX strategy, with the aim of lowering the combined ratio over the long term.
Issues and direction of initiatives
The significant increase in the number of policies in force through FY03/21 means there are more high-cost first-year policies, so the company anticipates higher operating costs. In response, it aims to improve its administrative workflow and systems to improve operational efficiency and keep administrative expenses under control. The company also says it will work to improve service quality to meet customer needs and maintain or increase its contract ratio.
Another issue is the rising loss ratio. With people spending more time at home on average due to the COVID-19 pandemic and increased awareness among policyholders as pet insurance becomes more common, pet owners are taking their pets to hospitals more frequently. The company also expects the loss ratio to rise due to higher unit costs as pets age and veterinary care becomes more sophisticated, and to an increase in policies for newborn pets, which typically result in a greater number of insurance payouts. In response, the company aims to shift to an expense structure that can absorb the rise in loss ratio, while also strengthening initiatives to curb the rise.
Revision of premiums
The company revised its insurance premiums in May 2021, lowering the premiums for dogs aged 12 or older and cats aged 9 or older to a fixed amount in response to requests from customers with aging pets. Shared Research understands that the premiums had been relatively high compared to competitors, which could have raised the risk of policy cancelation. On the other hand, the company raised premiums for dogs less than one year old and five years of age. We will be watching to see if the revised premiums attract new policyholders and affect overall performance.
Medium-term management plan
Medium-term management plan (FY03/22–FY03/24)
The number of policies in force topped 600,000 in FY03/21, and the company secured a solid position in the pet insurance market, with a market share of nearly 27%. In October 2020, it transitioned to a holding company format and, in March 2021, made Pet’s All Right Co., Ltd., a subsidiary. It plans to keep expanding its business under the holding company format hereafter.
In this context, the company formulated and disclosed a new medium-term plan (FY03/22–FY03/24) on May 14, 2021, and over the next three years intends to lay the groundwork for growth. Key objectives of the plan are to improve the top line with quality, increase productivity, and enhance the management base. The company will celebrate its 20th anniversary in May 2024.
Priority initiatives
Key objective 1: Improve the top line with quality
Key objective 2: Increase productivity (1)
The company finished upgrading its backbone system in December 2020. Next, it will be promoting the DX Project, which aims to make its administrative systems more resilient. The DX Project represents a change of direction in terms of backbone system development such as that carried out as part of the “promotion of digitalization” conducted under the previous medium-term plan.
Previously, the company developed its entire backbone system in-house, which required a large number of staff and ongoing investment in updates. Development itself was also difficult due to the complexity of pet insurance operations. Hereafter, the company will have an outside vendor develop the backbone system based on a SaaS-type system. It will not have to bear depreciation costs, since it will not own the software as assets. In addition, since development involves only partial customization at the time of SaaS implementation, expandability can be guaranteed. System updates will also be handled by the outside vendor.
Key objective 2: Increase productivity (2)
Key objective 2: Increase productivity (3)
Key objective 3: Enhance the management base
Group management
Pet’s All Right
In March 2021, the company made Pet’s All Right a wholly owned subsidiary. Pet’s All Right operates an online pet health consultation business that allows customers to consult with veterinarians, dog trainers, and holistic care counselors using their smartphones. The company says it aims to generate synergies by promoting the acquisition of new contracts for the consultation service through its pet shop channel, which is one of the group’s strengths. It also aims to improve its own renewal rate by providing an array of services that enrich pets’ lives.
P’s-first Insurance
P’s-first Insurance became a subsidiary of ipet Insurance on October 1, 2020. Since P’s-first does not underwrite policy renewals, existing customers can continue with ipet Insurance if they wish. P’s-first began referring customers to ipet Insurance for policies expiring in December 2020, and the inflow of customers has already exceeded ipet Insurance’s expectations, contributing to group synergy. Hereafter, P’s-first will maintain a system for appropriately responding to insurance claims from customers even after all of its policies have expired or been transferred to ipet Insurance. It also plans to develop new products as a small-amount short-term insurer capable of responding flexibly to customer needs.
Targets
Main KPIs
In formulating the new medium-term management plan, the company emphasized the profitability of its business over the medium to long term. For this reason, to its conventional KPI (number of policies in force), it has added lifetime value (LTV), policy acquisition cost (PAC), and internal rate of return (IRR), for a total of four indicators it will use in evaluating performance.
The company’s business value can be calculated using the following equation. As its mainstay business is a recurring-revenue business based on the assumption that pet insurance policies will be renewed, its business value comprises the value of policies in force to date plus the value of policies to be issued in the future. Business value can therefore be calculated as follows.
Business value = (LTV per policy) x (average remaining years / average years of renewal) x number of policies in force to date + (LTV per policy – PAC per policy) x (projected increase in number of policies in force)
Based on the company’s 2H FY03/21 results, LTV per policy is JPY67,545, average remaining years is 6.3, average years of renewal is 9.6, and there were 622,069 policies in force. Plugging these values (as disclosed by the company) into the equation, we can estimate that the value of policies to date is JPY27.5bn. Also, based on actual results, the company says PAC per policy was JPY18,325, and IRR for the pet insurance businesses was 46.1%. By adding the value of policies to be issued in the future, the company believes it can calculate a reasonable business value.
Business
Business model overview
Business description
Market share of nearly 27%, putting the company in second place in the pet insurance industry
In October 2020, ipet Holdings was established as the wholly owning parent of ipet Insurance Co., Ltd., through a single share transfer. The company’s core subsidiary, ipet Insurance, sells pet insurance and has a market share in the pet insurance industry of nearly 27%, second only to Anicom Holdings, which has a market share of 40.5%. ipet Holdings’ only reporting segment is the Nonlife Insurance business, which accounted for 98.9% of recurring revenue and 96.5% of recurring profit in FY03/21.
The company sells its mainstay pet insurance to general consumers, especially pet owners, to cover a certain percentage of the cost of surgery or other medical treatment for illness or injury, mainly for dogs, cats, and other pets kept in households (policy length is one year). This insurance is similar in function to medical insurance for humans (third-sector insurance), but the Insurance Business Act defines it as “insurance to cover damages suffered by the policyholder due to accident” (nonlife insurance). Products covering the risk of injury to pets were originally operated by mutual aid associations. The predecessor of ipet Insurance was established in 2004, but the earlier mutual aid associations were reorganized into nonlife or small-amount short-term insurers following a 2005 revision of the Insurance Business Act. Companies competing in the pet insurance industry include five nonlife insurers licensed by the Financial Services Agency (including the company itself) and 10 small-amount short-term insurers registered with Local Finance Bureaus.
The pet insurance sales and underwriting business, which is the company’s main business, is a recurring-revenue business in which the company collects premiums monthly from policyholders. Revenue can be explained in terms of the policy count and premium amount, but profits are affected by insurance accounting. The company first books premium revenue, and insurance payouts (cost of revenue) occur later, with unearned premiums for the next and subsequent insurance periods being carried forward as underwriting reserves, so profits straddle fiscal years.
The following are some key points that differentiate ipet Insurance from competitors: 1) it is a nonlife insurer licensed by the Financial Services Agency (with good credibility as a listed company), 2) it is a member of a safety net called the Non-life Insurance Policy-holders Protection Corporation of Japan, 3) it is able to provide over-the-counter settlement services at major veterinary hospitals nationwide alongside industry leader Anicom Holdings (TSE: 8715, a nonlife insurer), and 4) it has experience and expertise in developing online channels, which are seeing rapid growth (its accumulation of expertise has allowed the company to control the overall loss ratio and secure profits).
ipet Insurance has grown to hold a 27% market share in the pet insurance industry with more than 600,000 policies in force as of FY03/21. Hereafter, the company will focus on restructuring its management base as it works to complement its pet insurance and produce derivative products with the aim of diversifying its Nonlife Insurance business. The company established a pure holding company (ipet Holdings, Inc.) on October 1, 2020, and now plans to establish group companies based on appropriate procedures.
Policy on entering new businesses
Shared Research understands that ipet Holdings will focus on entering new businesses under its holding company structure by focusing on the pet industry and businesses with a large potential market size, and by actively making use of M&A and capital and business alliances with other companies, with an emphasis on synergies with the pet insurance business. In fact, in March 2021, ipet Holdings acquired all shares in Pet’s All Right Co., Ltd., which operates a platform service providing consultations on pet health and training and a range of pet-related information.
In FY03/21, the company’s recurring revenue grew 24.8% YoY due to steady gains in the number of policies in force. Adjusted recurring profit rose just 5.8% YoY due to an increase in expenses accompanying the influx of new policies and more frequent insurance claims.
Nonlife Insurance business (98.9% of recurring revenue in FY03/21）
Pet insurance products
The company currently sells four pet insurance products. Its mainstay products are Uchinoko and Uchinoko Light, both of which cover dogs and cats and are sold to general pet owners. In the case of Uchinoko, there are two plans, covering either 50% or 70% of costs for hospital visits, hospitalization, and surgery. On the other hand, Uchinoko Light was designed specifically to cover surgery costs, but not hospital visits. It covers 90% of surgery costs, and the premium for a cat (not yet one year old) is a reasonable JPY780 per month. The other two products the company sells are Uchinoko Plus and Uchinoko Cute, both of which are sold only via pet shop agencies.
The insurance period for these products is one year, with automatic renewal from the second year onward. Premiums vary depending on the chosen plan, the age of the pet (and whether it is a dog or cat), the breed, and other factors. For example, the premium for a toy poodle less than one year old in a 50% coverage plan is JPY2,480.
Note: Exotic animals include rabbits, ferrets, birds, hedgehogs, squirrels and flying squirrels, hamsters, mice, guinea pigs, lizards, and turtles.
Both in Japan and elsewhere, pet owners are less likely to purchase insurance for cats. The company says that in Japan about 15% of dogs are covered, but just 3–4% of cats (in the UK, 30% of dogs and 16% of cats have coverage). This appears to be because cats are less likely to be purchased at pet shops, instead coming through adoption agencies or natural increase (pregnancies of existing pets), and are less susceptible than dogs to injury and disease. However, if it comes to it, surgery can be quite costly.
The company has been focusing its attention on the cat market, realizing that if it can raise awareness of pet insurance, it can encourage customers to purchase policies online. In fact, the ratio of policies for cats is higher via online channels than through pet shop agencies. In terms of disease, cats can be particularly susceptible to kidney-related trouble, which is costly to treat. To handle such cases, the company recommends Uchinoko Light, which costs less and applies only to surgery, rather than the standard product that functions more like health insurance. It has also strengthened its cooperation with adoption agencies, a major source of cats. The company has been investing to improve ties with adoption agencies, increase its name recognition, and develop products.
Product revision (May 2021)
The company had not revised its premiums since it first launched its products more than 10 years ago. In light of the consumption tax hike, changes in the social environment surrounding pets, and rising insurance payouts due to growing medical costs accompanying advanced and increasingly sophisticated veterinary medicine, the company determined that it was necessary to revise the products, including premiums, in order to provide customers with more convenient services. Shared Research sees the revision of premiums as a strategic move to increase the number of new policies and maintain a good renewal rate, now that the company has a 27% market share and stable management in place.
Specifically, the company lowered the premiums for dogs aged 12 or older and cats aged 9 or older to a fixed amount in response to requests from customers with aging pets. Shared Research understands that the premiums had been relatively high compared to competitors, which could have raised the risk of policy cancelation. On the other hand, the company raised premiums for dogs less than one year old and five years of age.
Sales channels
How pets are acquired
According to a FY2015 survey by the Japan Veterinary Medical Association, 48% of dogs aged 0–6 were purchased via pet shops and other retailers, 18.8% from breeders, 29.8% were adopted (22.9% from friends and acquaintances, 4.3% from private-sector organizations, and 2.6% from public-sector organizations), and 3.5% were acquired by other means. For cats, 12.3% were purchased from retailers, 4.1% from breeders, 49.0% were formally adopted (breakdown: 36.7%, 9.6%, 2.7%), and 34.6% were informally adopted (feral or abandoned cats, or kittens born at home).
According to the Japan Pet Food Association’s national survey on dog and cat ownership (2020), 53.7% of pets came from pet shops, 14.0% from friends or acquaintances, 11.9% directly from professional breeders, 8.7% from friends or acquaintances who are breeders, and 3.9% from matching websites operated by adoption agencies.
The majority of new policies are purchased at pet shops at the time customers purchase their pets. When pets are acquired via adoption agencies or other routes, the ratio of owners purchasing policies is much lower, so both the company and its competitors are paying more attention to those routes recently.
The aforementioned surveys indicate that dogs are commonly acquired from pet shops or breeders, while cats are obtained more often through adoption agencies or other routes. This suggests there is room for growth not just at pet shop agencies, but in online channels (where the number of contracts would be similar to pet shops in the case of pets under one year of age, or even greater if pets of any age are taken into account), and development of breeder and adoption agency markets is also important.
Sales channels
Although pet shops remain the company’s main sales channel for new policies, the online channel has grown fast, with its share increasing from around 10% in 2013 to 40% as of FY03/18. ipet Insurance regards itself as a pioneer of online channels. The company started up a project to acquire online channels in 2013 and has made it a strategic priority. Since high risk policyholders are more likely to take out insurance, it is working to control the relatively high loss ratio as it expands its sales routes. The company’s pet shop agencies totaled 1,058 companies as of March 31, 2020 (according to the company’s own Disclosure pamphlet).
Pet shops
New policies break down by sales channel as follows: Approximately 60% via pet shops, 40% via online, the remaining (less than 10%) via general insurance agencies. Pet shops are the main channel for selling policies to insure newborns, which improve insurers’ product portfolios. It is a priority channel because approximately 50% of dogs are purchased from pet shops. Insurers currently invest money earned from the pet shop channel into cultivating online channels because policies acquired through online channels contribute to stable earnings when renewed despite having high initial customer acquisition costs.
The pet shop market is undergoing polarization between large and smaller companies. Large companies are increasing their number of stores while smaller, family-run pet shops are on the decline. Competition is severe among large pet shops because competitors have already established some business with them. ipet Insurance is exploring business expansion through collaboration with pet shops while avoiding price competition. The company is examining various aspects of pet shops’ business processes to provide an earnings contribution other than agency commissions. For example, ipet Insurance provides support for nonlife insurance agents (e.g., in obtaining qualifications and insurance sales training) and offers business process support utilizing IT to agencies.
ipet Insurance intends to continue making sales efforts and assist insurance agents for large pet shops while it aims to improve loyalty by providing a proprietary IT system to smaller pet shops that cannot afford to install commercial systems. This shows how ipet Insurance is strengthening its relationship with agencies in ways other than paying commission.
The number of policies in force at ipet Insurance is expanding in large part driven by a growing market and effects of various initiatives. We think pet shops are contributing to the rise. The company is also well positioned to take market share from smaller insurers because it is one of the top two insurers that offer most OTC insurance payouts, giving it an advantage over insurers with less market share.
Supporting nonlife insurance agents and strengthening sales: ipet Insurance prioritizes providing support for nonlife insurance agents to help pet insurance policyholders understand 70% payout plans and pet damage rider. The company is also seeking to stabilize its earnings by helping policyholders understand the cost advantage of paying premiums annually. ipet Insurance will continue to strengthen these initiatives.
Online channels
ipet Insurance cultivated online channels to diversify its sales channels, and the online channels have matured into a new source of earnings, which has driven the company’s growth. It plans to continue strengthening the online channels in its medium- to long-term strategy. It is important to note that the company is incorporating CRM techniques, effectively utilizing accumulated customer data in various ways, and applying the know-how to acquiring new customers. However, the company believes there is scope for improvement in growth rates and loss ratio by increasing the head count at CRM-related divisions and strengthening telemarketing by prioritizing CRM in growing online channels. It has also increased outbound calls from call centers to policyholders and prospective customers to improve renewal rates among the former and contract conclusion rates among the latter.
Online channels have a relatively high loss ratio because they tend to provoke adverse selection. That being said, online channels are making a solid contribution to earnings at recurring profit level because the majority of sales are direct (no agency commission paid) and the company has accumulated marketing know-how. Further, people with a high loss ratio who are aware of the need for insurance will try to sign up regardless of CRM, whereas others may drop out during the signing up process. Steadily acquiring the latter group of customers, the company is preventing a rise in the loss ratio.
Development of sales bases
As of March 2021, the company had three sales divisions in Tokyo, Nagoya, and Osaka, ten branches in Sapporo, Sendai, Utsunomiya, Niigata, Toyama, Shizuoka, Takamatsu, Hiroshima, Fukuoka, and Kagoshima, and two sales offices in Aomori (Aomori sales office of the Sendai branch) and Okinawa (Okinawa sales office of the Fukuoka branch). Aomori Prefecture is also home to the Aomori Business Center (Offices 1 and 2).
The company allocates vehicles to all sales offices and has a policy of customer-focused sales, i.e., visiting customers regularly and providing training to insurance agents. Such efforts help enhance the appeal of the company’s unique services and attractive commission rates to sales agents, and have become an established selling style. As a result, pet shop sales agents who deal directly with policyholders have become competent at explaining the advantages of 70% payout plan and annual premium payments, the need for pet damage riders, and about credit card payments in detail, which appears to have contributed to improved performance metrics.
Business alliance with Dai-ichi Life Holdings
In February 2019, ipet Insurance entered a business alliance with Dai-ichi Life Holdings, with the aim of selling ipet Insurance’s pet insurance products through Dai-ichi Life Insurance Company, Ltd., a subsidiary of Dai-ichi Life Holdings. The company introduces and proposes the pet insurance products to customers through Dai-ichi Life’s Total Life Plan Designers and its owned media.
P’s-first Insurance becomes a subsidiary
On October 1, 2020, the company made P’s-first Insurance (a small-amount short-term insurance business) a subsidiary. P’s-first Insurance had total assets of JPY746mn, net assets of JPY173mn, recurring revenue of JPY1.3bn, recurring profit of JPY21mn as of end-March 2020, and roughly 18,000 insurance policies in force. One of P’s-first’s affiliates is a pet shop chain with about 80 stores, mainly in the Kanto region, and one of its strengths is direct sales through its pet shop channel.
P’s-first Insurance’s policies are to remain in force until maturity, with policies transferred to ipet Insurance thereafter if requested by the policyholder. P’s-first Insurance’s key insurance products provide 100% coverage versus 70% for many of ipet’s products. The company assumes an inflow of 1,000 P’s-first Insurance customers per month, or 12,000 yearly. This amounted to about 2% of the 562,993 policies in force at end-September 2020.
Promotion of digitalization
Customer Relationship Management (CRM)
Shared Research thinks CRM consists of initiatives to make pet owners continuing customers of the company in the context of a pyramid-shaped structure of challenges to acquire continuing customers (see below). First, the company must overcome the challenge of identifying pet owners (finding 20% of households or 12mn pet owners in Japan). Second, it needs to make pet owners aware of pet insurance (targeting 60% of pet owners or 7mn pet owners to become aware of pet insurance). Third, the company must make those pet owners know about ipet Insurance (50% x 7mn = 3.5mn owners). Fourth, owners must choose pet insurance with the company (10% x 3.5mn = 350,000). Finally, policyholders must renew their policies (90% x 350,000 = over 300,000).
It is crucial to identify pet owners who make up 20% of total of 12mn households in Japan (at the first stage of the challenge), which makes a big contribution to increasing the number of policies in force and improving sales efficiency. The second challenge also offers opportunities because awareness of pet insurance is still low. Opportunities for cat owners in particular to learn about pet insurance are limited because cats are mostly adopted (formally or informally) or given away. The narrower the target, the more effective the company’s CRM strategies become. The company is tackling each challenge outlined above by utilizing CRM (including digitalization). Below we discuss the company’s strategy from the perspective of tackling challenges (note that there is some duplication with differentiation strategies).