Inflation is ‘not always negative in the insurance business’: Aflac CEO

Aflac CEO Dan Amos joins Yahoo Finance Live to discuss inflation, hedging risks, the labor market, and the outlook for insurance stocks.

Video Transcript

BRIAN SOZZI: Not every stock in the market has fallen on hard times. Shares of insurance giant Aflac are down slightly on the year, while the S&P 500 has given up about 16%. Analysts credit the relative outperformance to the general stability of the insurance industry, Aflac’s strong cash position, and the steady hand of our next guest. Dan Amos is the longtime CEO of Aflac and joins us now. Dan good to see you, I see got a feathery friend sitting there right next to you, that Aflac duck.

DAN AMOS: I do, I do. God bless him.

BRIAN SOZZI: It’s a good partner to have in life. But let me ask you this– the economic cycle is in fact, changing. And it’s changing rapidly. What changes are you seeing in your business?

DAN AMOS: Well, we have an enormous cash flow. And when you have inflation, of course, interest rates go up. And that actually is positive for us from that standpoint. The negative side is that the value of the bonds that you have go down in value. But we hold them to maturity almost in all cases.

And so generally, some inflation can be positive economically for us. Of course, then the ability for consumers to buy becomes an issue and whether or not they have the additional cash to be able to do that. So there’s checks and balances, but it’s not always negative in the insurance business.

BRIAN SOZZI: Have you been able to successfully push through price increases in this environment?

DAN AMOS: Well, we haven’t had any price increases at this point. Generally, what we do is we introduce a product. And it pays a certain amount, its indemnity in nature. So let’s just use the example that we paid $500 a day for every day you’re in the hospital. And now inflation’s taking place, and it’s 10% higher.

We introduce a new policy that pays 550 10% more. And it usually runs 10% more. You don’t have to buy if. You want to have the 500, you can keep it. If you want the 550, you can upgrade and buy it.

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So that’s a little different. Now we can have rate increases if we need it. But we’ve had so few rate increases in our history that it’s not a major issue for us.

JULIE HYMAN: Dan, it’s Julie here. At its core, the insurance business is a risk management business, assessing risks that are out there. So we’ve been talking to people for weeks now about whether the environment is indeed more risky now. I’m curious what you think in terms of the overall economic backdrop, whether you think risks are piling up and what we’re poised for here.

DAN AMOS: Well, you’re right. We’re in the risk business. We don’t avoid risk, we manage risk.

And to be perfectly honest, interest rates were so low for so long, especially with our operation in Japan, that that’s what began to worry me more than anything. And so as I see interest rates move up a little bit, in many ways, it’s less risky for us because those interest rates have been down so long. And what you have to do is you have to reprice policies at some point in time if that interest rate stayed that low.

Now there are other risks. But one of the other areas that helps is we are seeing unemployment relatively low. Most people can find a job if they want a job. And most of our business is written in an employee-employer environment. So these people have jobs.

And the other thing, our persistency from COVID has been very good. We saw a little weakness in the first quarter. We’ve got to watch it. But we don’t think that’s a major problem. We hope that’s just a little glitch that that’ll come back.

BRAD SMITH: To the extent that we have to continue to live with the endemic of COVID, how have you seen that show up in some of the demand from consumers who are looking for supplemental insurance?

DAN AMOS: Well, it’s really interesting. We thought that claims would spike. But what actually happened is our claims went lower initially. And what we found was people were not going to the doctor.

So what we’re watching now is what we call a tail on insurance. For example, let’s use the example that you went for your physical, a man did. And he was having a prostate exam. Or a woman was having breast exam. And they didn’t go for two years.

And all of a sudden what was going to be a level one of cancer ended up being a level three. That means the costs are going to be much higher going forward. And we’re watching that. We have not seen that spike that we think could happen. But that is the potential that it could happen.

One of the things that we’ve done in our new policy that we just introduced this year is we’ve got mental issues will be covered to some degree, to where because of people and COVID and what has happened, to help them handle those issues that are out there. Because the claims were lower, we wanted to find a way to give back some and the loss ratio. So we put that into the policy.

BRIAN SOZZI: Dan, real quick before we let you go, Gilbert, Gottfried longtime voice of the Aflac duck tragically passed away recently. Have you chosen a new voice? What are your plans with that?

DAN AMOS: We do have a new voice. Actually, Gilbert Gottfried has been gone several years. And the new voice is we did a search for a new Aflac duck voice. And believe it or not, we had 11,200 people apply for it. We went across the country or ended up choosing someone in Minnesota, who was not in the industry, but his voice seemed to be perfect. And we’ve been using it now for over five years.

BRIAN SOZZI: That in fact, is news you can use. We’ll leave it there. Dan Amos, CEO of Aflac, good to see you. We’ll talk to you soon.

DAN AMOS: Thank you.