Advance Create (listed on the First Section of the Tokyo Stock Exchange) was established as an insurance agency business by current President Yoshiharu Hamada in 1995. As an independent insurance agent, it boasts the largest number of insurance agency agreements with 95 insurers in Japan (as of December 17, 2021; compared to 48 and 50, respectively, for competitors Hoken No Madoguchi and Newton Financial Consulting [TSE JASDAQ Standard: 7169]). Its major segments are the Insurance Agency segment (75.4% of consolidated revenue, 72.2% of consolidated operating profit), which generates revenue from insurance agent commissions; the ASP segment (1.6% of revenue, 2.5% of operating profit); the Media segment (8.5% of revenue, 10.8% of operating profit), which generates revenue from advertising income; Media Rep segment (6.7% of revenue, 8.1% of operating profit); and the Reinsurance segment (8.6% of revenue, 6.4% of operating profit), which generates revenue from underwriting commissions. The company had an operating profit margin of 18.5% in FY09/21 (16.2% for Insurance Agency, 25.7% for ASP, 21.5% for Media, 20.5% for Media Rep, and 13.7% for Reinsurance).
The company’s business is tied to insurance premiums—which are composed of a pure premium (death benefits [risk premium] and pure endowment [investment portion of the premium]) and a loading premium (overhead costs such as agent commissions, advertising fees, outlet expenses, and personnel costs)—paid by customers to continue their insurance coverage. Insurance agents generally earn commissions from loading premiums, and the company also generates advertising revenue from loading premiums via its Media business, and reinsurance commissions from pure premiums by assuming the risk portion of death benefits from insurers in its Reinsurance business. Another distinctive characteristic of the company is its insurance product information website Hoken Ichiba, which functions as a platform to attract customers. This produces a virtuous cycle of business generation for the Media, Media Rep, and Reinsurance businesses, providing opportunities to monetize pure premiums without the need for underwriting reserves as the company is an insurance agent.
Advance Create’s customers are, first and foremost, the insurers with which it signs insurance agency agreements. However, because the company only generates agent commissions once it signs up new policyholders, its customer base in a broader sense also comprises consumers and corporate customers. It therefore offers value to customers on two fronts: (1) by increasing policies in force for insurers, and (2) by providing a sense of satisfaction for consumers through consulting services based on product comparisons. Price is not a factor in the value offered to consumers because premiums are uniform for the same policy at all insurance agents.
Accordingly, the company differentiates itself from competitors through its ability to sell insurance policies efficiently. Its sales strategy, Online Merges with Offline (OMO), comprises four elements: 1) attract customers to Hoken Ichiba (Japan’s top insurance product comparison and information website with monthly traffic of over 2.0mn visitors), 2) either steer customers toward non-face-to-face sales channels such as mail-order and fully Internet-based sales, 3) or refer customers to direct-sales consultation desks (Hoken Ichiba consulting plazas) for face-to-face sales (including online consultations), or 4) engage in collaborative sales through affiliated agents. By channel (based on annualized new premiums [ANP]), face-to-face sales account for 50% of new customer acquisitions, non-face-to-face sales for 29%, and collaborative sales for 21% (FY09/21). Third-sector insurance products (such as medical, cancer, and nursing care insurance) represent 41.8% of the company’s portfolio, first-sector products (such as term or whole life insurance) 30.4%, and second-sector products (such as auto and fire insurance) 27.8% (as of February 2021).
In accordance with the Accounting Standard for Revenue Recognition, Advance Create records revenue based on the present discounted value of future cash flows, which should make it easy to discern revenue trends by annualized new premiums (ANP; e.g., ANP of JPY200,000 for five-year product with premium of JPY1mn [JPY1mn/5]). The company’s ANP is closely correlated to cost of revenue, and promotion costs to sell new policies therefore warrant monitoring as they account for the bulk of cost of revenue. Its cost-to-revenue ratio stands at around 25% and its SG&A-to-revenue ratio at around 60%. Personnel expenses make up roughly 40% of SG&A expenses. Over the three years through FY09/21, the company’s ANP grew at a CAGR of just 0.4% with the impact of the COVID-19 pandemic, in contrast to the life insurance industry average (for 42 companies) of -15.6% for the same period.
The company has not disclosed its medium-term business plans, but it targets the following KPIs: ROE of at least 20%, a recurring profit margin (RPM) of at least 20%, a payout ratio of at least 50%, and an equity ratio of at least 80%. Key strategies are enhancing its online consultation focused OMO approach to boost productivity in its Insurance Agency business and creating further synergies from the Media, Media Rep, and Reinsurance businesses. It also aims to grow earnings by leveraging the IT technological capabilities of its ASP and BPO businesses and selling systems to third parties. Under the slogan “Software First,” the company plans to redouble its focus on systems development, which it has already moved in-house, and aims to develop a platform that connects consumers, insurance agencies, and insurance companies.
For FY09/21, the company reported full-year consolidated revenue of JPY11.0bn (+4.8% YoY), operating profit of JPY2.0bn (+72.4% YoY), recurring profit of JPY1.9bn (+75.7% YoY), and net income of JPY1.3bn (+85.0% YoY). Both revenue and profits reached new highs. The OPM of the Insurance Agency, the company's core business, rose to 17.7% from
10.9% in FY09/20. The cost-of-revenue ratio declined due to the
implementation of efficient promotions using AI and other technologies.
For FY09/22, the company forecasts revenue of JPY12.5bn (+13.4% YoY), operating profit of JPY2.3bn (+12.7% YoY), recurring profit of JPY 2.2bn (+14.2% YoY), and net income of JPY1.5bn (+11.9% YoY). Key measures include 1) promotion of OMO strategy based on online consultations, 2) fortification of online marketing, 3)
strengthening of system cooperation with collaborating agencies,
and 4) building a solid sales foundation as a financial information
The company’s strengths are 1) its ability to attract customers to its insurance product comparison and information website Hoken Ichiba, the largest in Japan 2) its in-house IT capabilities, and 3) its reinsurance operations. Its weaknesses are 1) low customer retention compared to rivals, 2) weakened organizational power in the network of affiliated agents, and 3) a shortage of finance and IT specialists hampering its envisioned growth.
|Gross profit margin||74.8%||74.2%||76.7%||80.4%||79.5%||75.8%||72.3%||71.2%||70.0%||77.7%|
|Operating profit margin||15.4%||17.0%||15.2%||15.9%||13.1%||12.8%||12.3%||13.0%||11.3%||18.5%||18.4%|
|Recurring profit margin||14.9%||16.5%||14.8%||15.7%||12.7%||12.6%||12.0%||12.5%||10.4%||17.5%||17.6%|
|Per-share data (split-adjusted; JPY)|
|Shares issued (year-end; '000)||10,999||10,999||10,999||10,999||10,999||10,999||10,999||10,999||11,038||22,557||-|
|EPS (fully diluted)||-||-||-||-||-||-||-||-||33.3||-||-|
|Dividend per share||35.0||40.0||40.0||42.5||47.5||47.5||50.0||50.0||25.0||-||30.0|
|Book value per share||373.3||387.4||415.1||437.7||425.6||432.5||433.4||444.4||261.1||305.6||-|
|Balance sheet (JPYmn)|
|Cash and cash equivalents||1,119||1,003||517||1,668||1,048||1,302||1,692||679||2,632||3,338|
|Total current assets||3,361||3,835||4,012||4,177||3,449||4,325||4,340||5,014||6,563||7,969|
|Tangible fixed assets||506||631||623||573||644||553||447||584||617||581|
|Investments and other assets||2,296||2,026||1,893||2,022||2,073||2,153||2,487||1,996||2,421||2,448|
|Total current liabilities||1,543||1,692||1,585||1,769||1,670||2,184||2,349||2,439||2,699||3,267|
|Total fixed liabilities||1,332||1,292||1,074||781||724||954||931||1,138||2,004||1,818|
|Total net assets||3,953||4,062||4,353||4,811||4,567||4,577||4,513||4,591||5,610||6,723|
|Total liabilities and net assets||6,827||7,046||7,012||7,361||6,961||7,716||7,792||8,168||10,313||11,808|
|Total interest-bearing debt||1,260||880||500||300||100||256||210||168||1,128||886|
|Cash flow statement (JPYmn)|
|Cash flows from operating activities||1,402||732||489||2,156||1,031||1,153||1,712||-279||1,352||1,643|
|Cash flows from investing activities||-246||174||-13||-450||-432||-119||-255||10||-528||-486|
|Cash flows from financing activities||-456||-1,024||-962||-555||-1,218||-779||-1,067||-799||1,098||-489|
On May 13, 2022, Advance Create Co., Ltd. announced its monthly performance summary for April 2022.
In the Insurance Agency segment, total annualized new premiums (ANP) at application in April 2022 were down 12% compared to the previous month due mainly to fewer operating days and diminishing insurance demand ahead of the extended Golden Week holidays. Compared with March 2022, ANP from mail order/online sales was down 16%, ANP from face-to-face (direct) sales channels were down 6%, and ANP from collaborative sales was down 24%. On a YoY basis, ANP was down 12% in total. Compared to April 2021, ANP from mail order/online sales was down 7%, ANP from face-to-face (direct) sales was down 15%, and ANP from collaborative sales was down 10%. Note that April 2021 logged a record high for the month of April.
At the ASP business, the company continues to report strong user ID numbers for GOYOKIKI and DECHI. ID numbers for Dynamic OMO, however, fell mainly due to changes in the users at customer companies.
|2022||(rate of change)||Jan||Feb||Mar||Apr||May||Jun||Jul||Aug||Sep||Oct||Nov||Dec|
|Mail-order/online sales (life insurance)|
|Face-to-face (direct) sales|
|2022||(number of IDs)||Jan||Feb||Mar||Apr||May||Jun||Jul||Aug||Sep||Oct||Nov||Dec|
On April 6, 2022, Advance Create Co., Ltd. announced its monthly performance summary for March 2022.
In the Insurance Agency segment, total annualized new premiums (ANP) at application in March 2022 were up 18% compared to the previous month due mainly to increased needs to review insurance toward the new fiscal year in Japan. Compared with February 2022, ANP from mail order/online sales was up 16%, while ANP from face-to-face (direct) sales channels were up 17%, and ANP from collaborative sales was up 26%. On a YoY basis, ANP was down 17% in total. Compared to March 2021, ANP from mail order/online sales was up 17%, while ANP from face-to-face (direct) sales was down 18%, and ANP from collaborative sales was down 5%.
In March 2022 (this time), the company began disclosing preliminary revenue data for the Media and Media Rep businesses, albeit only in graph form (with no specific figures). Judging by the graph, revenue is tracking above prior-year levels at both businesses. As insurance companies are customers at both businesses, revenue at the Media business in particular tend to be concentrated in March, when insurance companies close their books.
At the ASP business, the company continues to report strong user ID numbers for GOYOKIKI, DECHI, and Dynamic OMO. Downloads of the “folder” insurance policy management app were solid as well.
On March 4, 2022, Advance Create Co., Ltd. announced its monthly performance summary for February 2022.
In February 2022, total annualized new premiums (ANP) at application were up 4% compared to the previous month. Compared with January 2022, ANP from mail order/online sales were down 10%, while ANP from face-to-face (direct) sales were up 4%, and ANP from collaborative sales were up 14%. ANP from both face-to-face (direct) sales and collaborative sales grew compared to January thanks to the company's implementation of its OMO strategy, which focuses on online interviews. Compared to February 2021, ANP from mail order/online sales were down 12%, while face-to-face (direct) sales were down 20%, and ANP from collaborative sales were down 16%. Starting in FY09/22, the company is concentrating on automobile insurance, and new applications for auto insurance totaled approximately 1,200.
|(JPYmn)||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||% of Est.||FY Est.|
|Cost of revenue||781||1,602||2,314||3,155||737||1,313||1,857||2,452||609||1,217|
|Gross profit margin||70.4%||71.3%||69.8%||70.0%||71.4%||77.3%||77.9%||77.7%||77.5%||79.5%|
|Operating profit margin||11.2%||15.4%||9.9%||11.3%||8.4%||21.1%||19.2%||18.5%||12.5%||20.6%||18.4%|
|Recurring profit margin||10.5%||14.7%||9.1%||10.4%||7.3%||20.2%||18.3%||17.5%||11.5%||20.1%||17.6%|
|Cost of revenue||781||821||712||841||737||577||544||595||609||608|
|Gross profit margin||70.4%||72.1%||65.9%||70.5%||71.4%||82.0%||79.2%||77.4%||77.5%||81.1%|
|Operating profit margin||11.2%||19.1%||-||15.0%||8.4%||31.4%||15.1%||16.2%||12.5%||27.5%|
|Recurring profit margin||10.5%||18.5%||-||13.9%||7.3%||30.5%||14.2%||14.9%||11.5%||27.4%|
|Total revenue before adjustments||2,985||6,459||8,874||12,017||2,895||6,557||9,285||12,080||3,062||7,040|
|% of total||73.0%||72.5%||72.2%||74.3%||74.6%||73.1%||75.1%||75.4%||70.9%||67.0%|
|% of total||1.9%||1.5%||1.6%||1.5%||1.6%||1.4%||1.5%||1.6%||1.5%||1.4%|
|% of total||12.1%||14.0%||12.1%||10.4%||9.5%||11.9%||9.5%||8.5%||9.2%||15.3%|
|% of total||6.2%||5.6%||7.0%||6.7%||6.5%||6.6%||6.4%||6.7%||10.3%||9.1%|
|Media + Media Rep||468||1,056||1,282||1,481||346||1,054||1,280||1,578||455||1,407|
|% of total||18.3%||19.6%||19.1%||17.1%||16.0%||18.5%||15.9%||15.2%||19.4%||24.4%|
|% of total||6.8%||6.4%||7.1%||7.1%||7.8%||7.0%||7.5%||7.8%||8.2%||7.2%|
|Operating profit margin||11.2%||15.4%||9.9%||11.3%||8.4%||21.1%||19.2%||18.5%||12.5%||20.6%|
|OP before adjustments||295||856||756||1,182||215||1,220||1,613||2,039||340||1,222|
|% of total||62.6%||75.5%||60.7%||73.5%||50.1%||74.1%||74.0%||72.2%||52.0%||63.4%|
|(Operating profit margin)||8.5%||13.8%||7.2%||9.7%||5.0%||18.9%||17.1%||16.2%||8.1%||16.4%|
|% of total||4.6%||1.5%||1.5%||1.1%||5.3%||1.8%||1.9%||2.5%||2.1%||1.8%|
|(Operating profit margin)||24.4%||13.2%||8.0%||7.1%||24.2%||24.7%||22.2%||25.7%||15.2%||22.0%|
|% of total||24.7%||23.1%||30.1%||22.1%||26.6%||14.3%||12.0%||10.8%||18.0%||20.9%|
|(Operating profit margin)||20.2%||21.8%||21.2%||20.9%||20.8%||22.4%||21.8%||21.5%||21.7%||23.7%|
|% of total||0.4%||-||-||-||1.4%||5.6%||6.5%||8.1%||21.0%||10.2%|
|(Operating profit margin)||0.6%||-||-||-||1.5%||15.7%||17.8%||20.5%||22.7%||19.4%|
|Media + Media Rep||74||139||193||169||60||243||298||387||132||380|
|% of total||25.1%||16.3%||25.5%||14.3%||28.0%||19.9%||18.5%||19.0%||38.9%||31.1%|
|(Operating profit margin)||13.5%||11.0%||11.4%||8.2%||13.0%||20.0%||20.2%||21.0%||22.2%||22.1%|
|% of total||7.7%||6.7%||12.3%||11.1%||16.6%||4.2%||5.6%||6.4%||7.0%||3.7%|
|(Operating profit margin)||11.2%||13.8%||14.7%||15.4%||15.8%||11.2%||12.9%||13.7%||9.5%||9.0%|
|Total revenue before adjustments||2,985||3,473||2,416||3,143||2,895||3,662||2,728||2,795||3,062||3,978|
|% of total||73.0%||72.0%||71.4%||80.1%||74.6%||72.0%||79.8%||76.3%||70.9%||64.1%|
|% of total||1.9%||1.2%||1.8%||1.4%||1.6%||1.2%||1.7%||2.1%||1.5%||1.3%|
|% of total||12.1%||15.7%||6.9%||5.7%||9.5%||13.9%||3.8%||5.2%||9.2%||20.0%|
|% of total||6.2%||5.0%||10.9%||5.8%||6.5%||6.7%||5.9%||7.7%||10.3%||8.2%|
|Media + Media Rep||547||719||431||361||463||752||265||359||595||1,122|
|% of total||18.3%||20.7%||17.8%||11.5%||16.0%||20.5%||9.7%||12.8%||19.4%||28.2%|
|% of total||6.8%||6.1%||8.9%||7.0%||7.8%||6.4%||8.7%||8.8%||8.2%||6.4%|
|Operating profit margin||11.2%||19.2%||-||15.0%||8.4%||31.4%||15.1%||16.2%||12.5%||27.5%|
|OP before adjustments||295||561||-100||426||215||1,005||393||426||340||882|
|% of total||62.6%||82.3%||-||96.3%||50.1%||79.2%||73.9%||65.4%||52.0%||67.8%|
|(Operating profit margin)||8.5%||18.5%||-||16.3%||5.0%||30.2%||13.3%||13.1%||8.1%||23.5%|
|% of total||4.6%||-||-||0.4%||5.3%||1.1%||2.1%||4.7%||2.1%||1.6%|
|(Operating profit margin)||24.4%||-||-||4.1%||24.2%||25.3%||17.3%||34.0%||15.2%||28.1%|
|% of total||24.7%||22.2%||-||8.0%||26.6%||11.7%||4.6%||6.6%||18.0%||22.0%|
|(Operating profit margin)||20.2%||22.9%||17.9%||19.2%||20.8%||23.2%||17.3%||19.5%||21.7%||24.5%|
|% of total||0.4%||-||-||-||1.4%||6.5%||9.5%||14.1%||21.0%||6.0%|
|(Operating profit margin)||0.6%||-||9.1%||-||1.5%||26.6%||23.3%||28.0%||22.7%||16.2%|
|Media + Media Rep||74||65||54||-24||60||183||56||88||132||247|
|% of total||25.1%||11.6%||-||-||28.0%||18.2%||14.1%||20.7%||38.9%||28.1%|
|(Operating profit margin)||13.5%||9.1%||12.5%||-||13.0%||24.3%||20.9%||24.6%||22.2%||22.1%|
|% of total||7.7%||6.2%||-||9.0%||16.6%||1.6%||9.9%||9.2%||7.0%||2.5%|
|(Operating profit margin)||11.2%||16.2%||16.4%||17.4%||15.8%||6.7%||16.3%||16.1%||9.5%||8.5%|
Revenue increased JPY149mn YoY. By segment, Media, Media Rep, Reinsurance, and ASP had a YoY revenue
increase of JPY294mn, JPY209mn, JPY46mn, and JPY8mn, respectively. Insurance Agency had a
JPY73mn YoY revenue decline. The amount of adjustments increased JPY335mn. As for Insurance
Agency, sales were sluggish at directly
operated consulting plazas compared with 1H FY09/21.
The cost-to-revenue ratio declined 2.2pp YoY to 20.5%. SG&A expense rose JPY243mn.
Operating profit grew JPY2mn YoY. Media and Media Rep had a YoY operating profit increase
of JPY80mn and JPY56mn, respectively. Insurance Agency, ASP, and Reinsurance
posted a YoY operating profit decline of JPY129mn, JPY1mn, and JPY6mn,
respectively. OPM fell 0.5pp YoY to 20.6%. OPM for Insurance Agency fell 2.4pp YoY to 16.4%.
Revisions to full-year FY09/22 forecast: none
|(JPYmn)||1H Act.||2H Act.||FY Act.||1H Act.||2H Act.||FY Act.||FY Est.|
|Operating profit margin||15.4%||6.6%||11.3%||21.1%||15.6%||18.5%||18.4%|
|Recurring profit margin||14.7%||5.6%||10.4%||20.2%||14.5%||17.5%||17.6%|
Advance Create's initial FY09/22 forecast calls for revenue of JPY12.5bn (+13.4% YoY), operating profit of JPY2.3bn (+12.7% YoY), recurring profit of JPY2.2bn (+14.2% YoY), and net income attributable to owners of the parent of JPY1.5bn (+11.9% YoY). Key measures include 1) promotion of OMO strategy based on online consultations, 2) fortification of online marketing, 3) strengthening of system cooperation with collaborating agencies, and 4) building a solid sales foundation as a financial information service provider.
The company plans to assign elite professionals who have a proven track record in online consulting to Smart Consulting Plaza and will establish online role models for horizontal deployment. It will also give Smart Consulting Plaza sales division functions for monitoring online consultations conducted nationwide. In terms of functionality, Dynamic OMO managers can instruct insurance solicitors during consultations via text messages, further improving the productivity of online consultations.
Advance Create is also considering enhancing initiatives related to non-life insurance products, with a view to making proposals using its digital transformation (DX) mechanisms.
As of end-2021, 35 companies were using the Dynamic OMO system, and Advance Create says it has received inquiries from megabanks and major securities companies.
Advance Create does not disclose medium-term management plans, but we provide our views on the company’s medium-term outlook below.
The company does not release medium-term management plans, but targets the following KPIs: ROE of at least 20%, RPM of at least 20%, payout ratio of at least 50%, and an equity ratio of at least 80%.
Insurance agency operation is shifting toward one-time revenue business industry-wide. Despite this trend, Advance Create must continue to increase its policies in force, so the key question is how it can efficiently increase requests for brochures and face-to-face appointments to begin with. At the same time, the company has room to improve its renewal rate from the second year onward; other outstanding challenges include strengthening after-sales services and the competitiveness of affiliated agents. Effective strategies include reinforcing the competitiveness of affiliated agents through the ASP and BPO businesses, and securing a high number of policies through policy transfers.
Seeds for new recurring-revenue businesses have been planted through the ASP and BPO businesses. The company plans to push ahead with external sales of GOYOKIKI, DECHI, HIKYAKU, and Dynamic OMO while promoting its Advance Create Cloud Platform (ACP) to insurance companies and agents. It also plans to market its BANTO contract information checking system and online consultation system externally.
ACP has prospects to foster industry support for open application interfaces (open APIs: publicly available specifications that enable interaction between insurers and user systems with the goal of developing shared systems in the industry and thus expanding the market), which is an area where the insurance industry still struggles.
The company has named its OMO approach and “Software First” as key elements of its strategy. Advance Create has combined its online and offline operations because increasing points of contact with customers is the most important aspect of its business model. One of its strengths in this respect is having brought systems development in-house (as of September 30, 2021, 108 (23.2%) employees were assigned to IT and InsurTech activities out of a total of 466 employees [including contract employees]).
The company uses systems developed in-house and offers them to affiliated agents and primary insurers once it has demonstrated their benefits. The strategic direction entails selling in-house developed software to consumers, independent agents, and primary insurers and developing a platform that connects parties involved in the insurance industry.
Current President Yoshiharu Hamada and his wife Akiko established Advance Create in Osaka in 1995. They started the business in a one room condo on the sixth floor of a building located on a side street off of Midosuji Avenue (Osaka). Advance Create started operating as an independent insurance agent from around 1997, following the enactment of the new Insurance Business Act in 1996.
Insurance agents enter into agency agreements with insurers, and sell insurance policies on behalf of such companies—either as an intermediary or directly—to general consumers and corporate customers. Insurance agents can be broadly divided into captive and independent agents. The former concludes an insurance agency agreement with only one insurer, while the latter enter such agreements with multiple insurers. Independent agents have an advantage over captive agents because they carry a larger number of products in their portfolio, allowing customers to more easily find an insurance product that fits their needs. Operating as independent insurance agent was approved under the new Insurance Business Act of 1996.
The company operates in five major segments: Insurance Agency, ASP, Media, Media Rep, and Reinsurance. In the Insurance Agency business, the company enters into insurance agency agreements with life and non-life insurers and sells insurance products on their behalf. In the ASP business, the company develops and sells systems that link insurance data between consumers, insurance companies, and independent agents. In the Media business, the company markets its insurance product comparison and information website Hoken Ichiba (discussed in more detail below) as a content media platform to insurance companies. In the Media Rep business, the company uses its expertise in advertising management to manage ads on behalf of insurance companies under contract. In the Reinsurance business, it earns underwriting commissions from life insurers by assuming—through its reinsurance subsidiary Advance Create Reinsurance (ACR)—the risk element of life insurance products issued by such companies and thus share their risk burden.
In FY09/21, the Insurance Agency business contributed 75.4% of revenue, the ASP business 1.6%, the Media business 8.5%, the Media Rep business 6.7%, and the Reinsurance business 7.8%.
In FY09/21, consolidated revenue reached JPY11.0bn on a three-year CAGR of 5.2%. Revenue expanded 2.9% in the mainstay Insurance Agency business, 7.4% in the Media business, and 9.2% in the Reinsurance business. (The company started disclosing segment information for the ASP business from Q4 FY09/18, and for the Media Rep business from Q4 FY09/20.) Operating profit was JPY2.0bn on a three-year CAGR of 20.4% (0.6% in the Media business and 7.0% in the Reinsurance business). The combined share in operating profit of all other businesses excluding Insurance Agency rose from 1.0% in FY09/09 to 42.0% in FY09/19, but was 27.8% in FY09/21.
In 1997, when the mainstream sales channel for life insurance products was door-to-door sales, Advance Create began sales activities focused on leaflet distribution. In two years, it reached 6mn families across the country by using this approach, accumulated 7,000 policies in force, and worked with 200 leaflet distribution companies. By mailing application materials to prospective customers, the company managed to reduce costs associated with face-to-face sales, thus proving that mail-order sales were an effective non-face-to-face business model for companies that had no prior experience in selling insurance.
|Segment revenue and profit||FY09/12||FY09/13||FY09/14||FY09/15||FY09/16||FY09/17||FY09/18||FY09/19||FY09/20||FY09/21|
|% of total||95.2%||94.1%||89.1%||87.9%||80.5%||84.5%||84.2%||76.3%||74.3%||75.4%|
|% of total||-||-||-||-||-||-||0.0%||1.6%||1.5%||1.6%|
|% of total||2.7%||2.4%||5.0%||4.7%||11.5%||7.6%||8.4%||9.3%||10.4%||8.5%|
|% of total||-||-||-||-||-||-||-||5.9%||6.7%||6.7%|
|% of total||2.1%||3.5%||5.8%||7.4%||8.0%||7.9%||7.3%||6.8%||7.1%||7.8%|
|Operating profit margin||15.4%||17.0%||15.2%||15.9%||13.1%||12.8%||12.3%||13.0%||11.3%||18.5%|
|% of total||97.0%||94.7%||85.3%||88.6%||66.2%||71.6%||72.3%||57.9%||73.5%||72.2%|
|Operating profit margin||15.3%||16.7%||13.9%||15.4%||9.8%||10.2%||10.1%||8.9%||9.7%||16.2%|
|% of total||-||-||-||-||-||-||0.0%||6.1%||1.1%||2.5%|
|Operating profit margin||-||-||-||-||-||-||3.7%||45.0%||7.1%||25.7%|
|% of total||2.9%||2.5%||7.4%||6.7%||23.4%||15.7%||18.6%||15.8%||22.1%||10.8%|
|Operating profit margin||16.0%||17.0%||21.5%||21.7%||24.3%||25.1%||26.1%||19.9%||20.9%||21.5%|
|% of total||-||-||-||-||-||-||-||12.0%||-||8.1%|
|Operating profit margin||-||-||-||-||-||-||-||23.7%||-||20.5%|
|% of total||0.2%||2.9%||7.3%||4.8%||10.4%||12.7%||9.1%||8.2%||11.1%||6.4%|
|Operating profit margin||1.2%||13.7%||18.1%||9.9%||15.6%||19.4%||14.6%||14.2%||15.4%||13.7%|
The success of insurance mail-order sales hinges on collection of customer information such as personal data and historical records of customer interaction. In 1999, Advance Create internally developed the GOYOKIKI system, a database of customer information. When the Internet started taking off—but long before insurers had corporate websites—the company established its Hoken Ichiba website with the ambition of creating a secondary insurance product market that could serve as a platform through which buyers and sellers could freely engage in transactions on equal footing, replacing the more aggressive sales practices that were the norm at the time.
Effective utilization of the GOYOKIKI customer database enabled direct mail and outbound calls, realizing one-to-one marketing based on customer relationship management (CRM). Advance Create achieved all of this before CRM started garnering attention in the Japanese finance world in the early 2000s, which is a testament to the company’s foresight and execution capabilities.
Advance Create listed in 2002. From 2004, the company started rolling out stores that were effectively the precursors to modern walk-in insurance shops. However, its store network grew excessively large over time, peaking at 197 stores, at which point the company was forced to streamline its operations. In FY09/06, the company was forced to move to restructure due to losses. In 2007, new insurance applications received via the Hoken Ichiba website for the first time exceeded those received through leaflet distribution. This prompted the company to revamp Hoken Ichiba into a platform for insurance product comparisons, with online marketing as the foundation. By FY09/09, Advance Create had created the template for its current business model.
The company’s business model is best illustrated by analyzing the underlying components of insurance premiums earned by insurers. Life insurance services are underpinned by the concept of mutual aid in the sense that a society or community equitably shoulders the risk of deaths, injuries, diseases, or other adverse events. Insurance premiums are determined based on this principle of equivalence (insurance claims paid x number of deaths = insurance premiums x number of policyholders). Let us take a group of 100 people as an example. Assuming that two persons in this group will die in the next year (2% mortality rate) and that a life insurer will have to pay the bereaved families JPY1mn each, we expect the total insurance claim payment to be JPY2mn (JPY1mn x 2 people). If we distribute the burden equitably across all members of the group, we arrive at an insurance premium of JPY20,000 per person (JPY2mn/100 people). This is the calculation logic that underpins insurance premiums.
By paying insurance premiums to insurers, customers essentially fund 1) future insurance claim payments (pure premiums) when a risk materializes, and 2) expenses (loading premiums) necessary to operate insurance companies and their insurance frameworks. Insurance premiums can therefore be thought of as combination of pure premiums and loading premiums. The bulk of Advance Create’s revenue is generated from agent commissions in the Insurance Agency business. From the standpoint of an insurer, such commissions are paid from loading fees, which are booked under SG&A expenses (as shown in the following figure).
Advance Create also generates advertising revenue in its Media business by selling ad space on its insurance product comparison and information website Hoken Ichiba to insurance companies. Such advertising expenses are booked by insurers as overhead costs and also paid from loading premiums. Incidentally, the company entrusts the management of its Hoken Ichiba website to subsidiary Hoken Ichiba Co., Ltd., which engages in advertising operations on behalf of the company (the website’s publisher). In the Media Rep business, the company receives an advertising budget from primary insurers and manages advertising on their behalf under contract.
In the Reinsurance business, reinsurance subsidiary ACR earns reinsurance commissions for assuming the risk element of life insurance products issued by life insurers and thus reducing the risk burden of such companies. Put differently, insurers transfer the risk element of their underwritten insurance to ACR, and the reinsurance commissions paid to ACR are therefore paid from pure premiums.
Generally speaking, insurance agent businesses generate revenue exclusively from loading premiums, but Advance Create earns additional revenue from loading premiums through its Media business, and also captures revenue from pure premiums through its Reinsurance business. The company’s unique business model thus allows it to capitalize on a range of earnings opportunities.
The company has created a unique value chain distinguished by customer-attraction capabilities and operational efficiency, both of which are powered by online marketing. The product selection process it provides to customers through its online marketing is supported by the following activities.
Insurance products are classified into first-, second-, and third-sector products (see following table). First-sector products comprise term and whole life insurance products sold mainly by major traditional life insurers. These products are characterized by high insurance proceeds per policy. Second-sector products include specific products offered by non-life insurers such as fire insurance, auto insurance, or marine insurance. These products span a range of insurance proceeds per policy. Third-sector products cover products that do not fall under first- or second-sector products, and can be sold by life insurance companies, non-life insurers, and new market entrants (provided they have received regulatory approval). Prime examples of third-sector products are cancer and medical insurance products, which have comparatively low insurance proceeds per policy.
Third-sector insurance products, which include medical and cancer insurance, originally referred to products of non-Japanese life insurers approved for domestic sales. In 1973, Alico Japan (American Life Insurance Company, currently Metlife) became the first non-Japanese life insurer to start operations in Japan. The enactment of the new Insurance Business Act in 1996 opened the door for Japanese life insurers and non-life insurers to legally provide third-sector products. However, measures were taken to prevent disruptions to the operating climate of non-Japanese life insurers, as a result of which domestic life insurers and non-life insurers were not permitted to offer medical and cancer insurance products until later. The measures were lifted in 2001.
|Category||Description||Specific area||Type||Definition||Main products|
|First sector||Insurance related to a person’s life or death||Area of business licensed only to life insurers||Death insurance||Insurance that mainly pays insurance benefits when the insured individual dies||Variable insurance (renewable term)|
|Whole life insurance with term rider|
|Death and pure endowment insurance||Insurance that combines death and pure endowment insurance||Endowment insurance with term rider|
|Variable insurance (fixed term)|
|Pure endowment insurance||Insurance that mainly pays insurance benefits when the insured individual remains alive after a certain period of time||Individual annuities (fixed amount)|
|Individual annuities (variable amount)|
|Second sector||Insurance that compensates for damages caused by a fortuitous accident||Area of business licensed only to non-life insurers||Marine field||Insurance that covers cargo or ships||Marine insurance (hull insurance, transport insurance, cargo insurance)|
|Non-marine field||Insurance that covers fires and automobiles||Fire insurance, auto insurance, bicycle insurance, accident insurance, income indemnity insurance, medical expenses insurance, nursing care expenses insurance, liability insurance, movables general insurance, pet insurance|
|Third sector||Insurance that does not belong to the first or second-sector categories||Area pursued by life and non-life insurers||Accident and sickness insurance||Insurance that provides insurance benefits when the insured individual becomes ill, falls into specific conditions due to diseases or accidents, or dies from an accident||Child insurance|
|Term insurance with survival benefits|
Advance Create has concluded insurance agency agreements with—and accordingly sells products from–95 insurers (31 life insurers, 29 non-life insurers, and 35 small-amount and short-term insurers as of December 17, 2021), putting it well ahead of major competitors such as Hoken No Madoguchi (agreements with 48 insurers) and NFC Holdings (50). To maintain such agreements, insurance agents are required to sell a certain volume of policies, and commission rates are often raised based on sales achievements and operational quality. The company has secured a significantly higher number of insurance agency agreements with insurers than its competitors, which is indicative of the deep trust it has earned among insurers.
The following table shows the company’s product mix by product category as of February 2021. First-sector products accounted for 30.4%, second-sector products for 27.8%, and third-sector products for 41.8%. The insurers whose products generated the largest revenue (agent commissions) for the company in FY09/21 were (in descending order): (1) Metlife Life Insurance (28.0%), (2) Medicare Life Insurance (13.0%), and (3) Zurich Life Insurance (9.7%). As independent agents were approved under the new Insurance Business Act of 1996, the company started leaflet distribution sales for Aflac’s cancer insurance products in 1997, and for Alico Japan (currently Metlife) products in 1998.
|Product||No. of products||% of total||Category|
|Death insurance||71||26.0%||First sector|
|Medical insurance, inpatient insurance||59||21.6%||Third sector|
|Cancer insurance||21||7.7%||Third sector|
|Insurance for females||16||5.9%||Third sector|
|Educational endowment insurance||8||2.9%||First sector|
|Individual annuities||4||1.5%||First sector|
|Nursing care insurance||5||1.8%||Third sector|
|Auto insurance||17||6.2%||Second sector|
|Travel insurance (domestic, overseas)||13||4.8%||Third sector|
|Fire insurance||13||4.8%||Second sector|
|Other non-life insurance||46||16.8%||Second sector|
Advance Create’s customers are, first and foremost, the insurance companies with which it signs insurance agency agreements. However, because the company only generates commissions once it signs up new policyholders, its customer base in a broader sense also includes consumers and corporate customers, mainly high-income individuals such as professional service providers including lawyers and accountants, and SME managers, who are known as innovators and early adopters (those who accept new products, services, and lifestyles at relatively early stage). They make up about 15% of the customer base. Advance Create does not conduct door-to-door sales, but rather attracts customers to its insurance product comparison and information website Hoken Ichiba. Therefore, it has to consistently increase online exposure of its products to raise its name recognition and steer customers toward direct-sales outlets or affiliated agents.
The company offers value to insurance companies by increasing the number of policies in force. It also provides a sense of satisfaction for consumers through its consulting services based on product comparisons. Insurance premium is not a factor in the value offered to consumers because premiums are uniform for the same insurance product across insurance agents.
Advance Create’s sales model allows customers to select their preferred sales channel from a broad portfolio. By accessing the company’s insurance product comparison and information website Hoken Ichiba (which attracts over 2mn visitors per month) via SNS or from a PC, customers can choose to purchase insurance through non-face-to-face channels such as mail-order sales or fully Internet-based sales or face-to-face channels such as direct-sales consultation desks (Hoken Ichiba consulting plazas or online consultations) or affiliated insurance agent outlets (including online consultations). The company does not regard its online and offline sales channels as separate, but rather as a large unified market, and aims to fuse its services and functions accordingly.
In the company’s online marketing operations, requests for brochures generate appointments for face-to-face consultations, which in turn lead to applications. The number of requests for brochures therefore functions as an indicator of future revenue. Growth in the number of requests for brochures fuels expansion in appointments and, by extension, applications.
Advance Create’s first point of contact with customers is its insurance product comparison and information website Hoken Ichiba. The company says Hoken Ichiba has monthly traffic of more than 2mn accesses.
The number of people visiting Hoken Ichiba via smartphone rather than PC has increased, with access via smartphone now accounting for 80%. In June 2016, the company created a corporate Hoken Ichiba account on the LINE messaging app, providing useful information for insurance selection or recommended content to customers registered as friends. In addition to relaying information, the account also facilitates inquiries about the status of insurance contracts or the delivery status of requested brochures.
At present, 80% of the visitors to Hoken Ichiba are smartphone users. The Hoken Ichiba mobile site offers standard product search and comparison functions, as well as a wealth of articles that present different perspectives to help deepen customers’ understanding of products.
The mobile website has a simplified interface that facilitates search, featuring categories such as “Search by premium,” “Search by ranking,” “Consult with a professional,” and “Compare online insurance” at the top of the screen.
When tapping the “Search by premium” category or the “Insurance comparison start” button located further down the page, users are prompted for gender and age information. Once the data is entered, search results can be displayed by popularity or insurance premium. Each result contains a concise overview of a product followed by buttons to “Request brochure” or “Request estimate/Apply.”
By tapping “Search by ranking,” users can search for insurance products by categories such as life (death) insurance, medical insurance, hospitalization insurance, and cancer insurance. Tapping “Medical insurance” brings up the top-ranked insurance products, and pressing the “More details” link reveals a product overview and a premium calculation tool, allowing users to enter their gender and age to immediately confirm the monthly premium. When tapping the “In-store consultation” button, users are prompted to select between “Home consultation” or “In-store consultation.” The first option leads to an appointment screen, allowing customers who are keen to learn more about certain products to book an appointment in under a minute.
When tapping the “Consult with a professional,” customers are similarly prompted to choose between “Home consultation” and “In-store consultation.” If they select “Home consultation,” customers can book an appointment with one of the 5,000 insurance consultants working across the country.
The website also offers a wealth of articles related to insurance ranging from basic information such as “calculation of insurance premium” and “difference between insurance premiums and insurance claim payments,” to “key points in selecting life insurance” and “insurance expertise” written by insurance advisors. By reading such articles, customers can collect a large amount of information sourced from specialized insurance literature and statistics.
Advance Create conducts methodical search engine marketing (SEM: combination of search engine optimization [SEO] and listing ads) to maintain and expand the customer-attraction capabilities of Hoken Ichiba. In search results for insurance-related keywords on Google, Hoken Ichiba shows up in the top five. Advance Create posts listing ads on search engines such as Google and Yahoo! Japan using automated bidding and is expanding the scope of where its places its ads, including social networking and news apps. In the past, 70–80% of the cost of revenue was for listing ads and SEO measures, but in FY09/21 these accounted for roughly 30%. The company is pursuing more efficient marketing by enhancing guerilla marketing measures using AI.
|Keyword||Insurance||Life insurance||Cancer insurance||Medical insurance||Overseas travel insurance||Whole life insurance|
|First||Hoken Ichiba||Hoken Ichiba||Aflac||ORIX Life||kakaku.com||ORIX Life|
|Second||Hoken Minaoshi Honpo||Zurich Life||kakaku.com||Zurich Life||Sony Assurance||kakaku.com|
|Third||Aflac||kakaku.com||Hoken Ichiba||kakaku.com||Mitsui Sumitomo Insurance||Aflac|
|Fourth||kakaku.com||ORIX Life||Zurich Life||Hoken Ichiba||au Insurance||Tokio Marine & Nichido Anshin Life|
|Fifth||Lifenet||Lifenet||Lifenet||Aflac||Sompo Japan||Sompo Himawari Life Insurance|
As of December 2021, Advance Create engaged in collaborative sales through 716 outlets operated by 95 affiliated insurance agents around the country, and over 50,000 affiliated insurance solicitors. The revenue from insurance policies sold by affiliated agents is divided equally between Advance Create and the affiliated agent. This requires no additional work from the company as a system is in place by which insurers pay 50% of the revenue to each party. ANP figures disclosed by Advance Create includes the 50% in revenue the company receives from the insurer.
The company’s affiliated agent network at one time expanded to 302 companies, but subsequently declined to 100. However, this has not triggered a sharp decline in ANP. In recent years, the company has increasingly scaled down its network as it sought to strengthen information security (customer information) and comply with security levels mandated by the revised Insurance Business Act. The decline in outlets has also in part been driven by individual insurance agents discontinuing their operations.
108 staff on the company’s total workforce (466, including temp workers) are allocated to its IT division. President Hamada, who is in touch with the IT staff on a daily basis, apparently has been a strong proponent of data-driven operations since the days Advance Create engaged in leaflet distribution sales (immediately after inception of the company). The aggregation of customer data in the early days of the company was undoubtedly a strategic decision intended to facilitate a future transition to online marketing with the rise of the Internet. In addition to its insurance product comparison and information website Hoken Ichiba, which is extremely effective in attracting customers, the company’s in-house IT capabilities have been an important factor (both from a strategic and cost standpoint) in maintaining and expanding business partners by reducing administrative costs at affiliated agents.
However, the fact that much of the innovation of the company has been driven by President Hamada is an issue the company will need to address in the future. When the revised Insurance Business Act of 2016 introduced a system maintenance obligation for insurance solicitors, this effectively meant the large independent agents should be treated on an equal footing with insurers, marking a departure from the traditional perception of insurance agents as operating under the supervision of insurers. The compliance cost burden eroded the company’s entrepreneurial and innovator spirit, forcing it to operate more like a regular company. As the company continues to establish internal systems and transfer authority, it will need to invest in human resources recruitment and training to maintain and further develop the corporate culture fostered by President Hamada and his wife.
Advance Create still has room for improvement in building long-term relationships with existing customers, as evident in the fact that its contract renewal rate starts to gradually drop off from the second year (13th contract month: 95.7%, 25th month: 93.1%, 37th month: 91.5%; as of September 2020). Compared with the strong renewal rates at industry leader Hoken No Madoguchi (13th month: 97.2%, 25th month: 94.1%, and 37th month: 90.9%), there is evidently scope for improvement. However, the company only operates 11 direct-sales outlets at present, so the low contract renewal rates are not necessarily a sign of poor after-sales service quality.
The company’s main source of revenue is insurance agent commissions received from insurers. Its largest expenses are promotion costs necessary to secure new policies. Promotional activities result in upfront spending (particularly, advertising and personnel costs), and insurance agent commissions typically lag outlays by three to four months. From FY09/19, this lag in revenue recognition is expected to dissipate as companies are permitted to apply the Accounting Standard for Revenue Recognition three years ahead of the mandatory adoption.
While an insurance contract remains in force, insurance agents can continue to earn commissions for five to ten years. Therefore, Advance Create’s earnings structure is skewed toward traditional recurring-revenue operations. However, although policies in force for third-sector products have increased in number, the average premium per product in the life insurance industry has declined by two-thirds from JPY270,000 in FY2003 to JPY110,000 in FY2015. Amid a business environment in which short-term and small-amount insurance products are gaining traction, Shared Research believes the company is drifting toward a one-time revenue business.
The Insurance Agency business is the company’s mainstay business, accounting for 75.4% of consolidated revenue in FY09/21, when segment revenue amounted to JPY9.1bn (+2.0% YoY) and operating profit reached JPY1.5bn (+69.5% YoY). OPM was 16.2%.
The Insurance Agency business generates revenue from insurance agent commissions received from insurers with which the company has signed insurance agency agreements. Commissions differ by insurer, and commission rates are not disclosed. However, any external assessment of the company should take into account factors such as the correlation between commission rates and the number of acquired insurance policies.
At present, the company utilizes Annualized New Business Premiums (ANP) as an indicator of revenue growth. Insurance premiums can be paid using several methods (monthly, yearly, or upfront as a lump sum [single premium]) and across several intervals (paid over full duration of contract period or specific period). ANP represents the assumed insurance premium revenue an insurer will earn over one year after adjusting for differences in payment method and averaging out payments over the contract period (according to “Life Insurance Company Disclosures (Cheat Sheet) 2007” published by the Life Insurance Association of Japan). For example, the ANP for a monthly premium of JPY5,000 is JPY60,000 (JPY5,000 x 12 months).
While we can identify revenue trends for Advance Create by analyzing its ANP, we should remember that ANP is not equivalent to recorded revenue. The following table elaborates on our ANP example above. It shows cash flows broken down into customer payments, insurer revenue, and Advance Create revenue and expenses. It also displays cash flows and present value (PV) for a 10-year period while factoring in assumed changes in insurance agent commissions as the years go by.
|Assumptions||Product: JPY5,000/mo (ANP JPY60,000), term 10 years|
|Commission ratio (initial year): 50%||Initial renewal rate: 90％ (annual)|
|Commission ratio (all other years): 10%||Renewal rate (all other years): 95％ (annual)||Promotions to start in: April|
|Cash flows (JPY)||Policyholder payment||5,000||5,000||5,000|
|Insurance company: underwriting revenue||5,000||5,000||5,000|
|Insurance company: operating revenue||2,479||2,458||4,937|
|Insurance company: operating expenses||20,000||20,000|
|Cash flows (JPY)||Policyholder payment||5,000||5,000||5,000||5,000||5,000||5,000||5,000||5,000||5,000||5,000||5,000||5,000|
|Insurance company: underwriting revenue||5,000||5,000||5,000||5,000||5,000||5,000||5,000||5,000||5,000||5,000||5,000||5,000|
|Insurance company: operating revenue||2,438||2,417||2,396||2,375||2,354||2,333||2,313||2,292||2,271||2,250||498||496||24,433|
|Insurance company: operating expenses||-||-||-||-||-||-||-||-||-||-||-||-||-|
|Cash flows (JPY)||Policyholder payment||5,000||5,000||5,000||5,000||5,000||5,000||5,000||5,000||5,000||5,000||5,000||5,000|
|Insurance company: underwriting revenue||5,000||5,000||5,000||5,000||5,000||5,000||5,000||5,000||5,000||5,000||5,000||5,000|
|Insurance company: operating revenue||494||492||490||488||485||483||481||479||477||475||473||471||5,788|
|Insurance company: operating expenses||-||-||-||-||-||-||-||-||-||-||-||-||-|
|Assumption: Deduct cumulative expenses from total 10-year commissions assuming the initial year renewal of 90% and all other year 95%|
|Operating profit (future value)||Year 1|