Why I love USAA

The United Services Automobile Association (USAA) was founded in 1922 as the United States Army Automobile Association, by a group of 25 Army officers in San Antonio, TX.  Major William Henry Garrison called the group together to develop a solution to a major problem: because of their frequent moves and deployments, Army officers were having difficulty obtaining automobile insurance that was not expensive and prone to cancellation.  The new mutual company was modeled on the Army Cooperative Fire Insurance Company.  Despite quickly developing a membership of 124 officers, the young company did not effectively model its policy costs and faced a deficit of $3000; as a result, the Board voted to extend membership to active duty officers in both the Navy and the Marines, and to adopt both the USAA name as well as a policy of paying dividends to its members (Gale).

That first expansion would be repeated many times, and over the last eight decades it has grown into a Fortune-500 financial services company.  In 2010, USAA had a total of 7.7 Million member customers, $68 Billion in assets, over $17 Billion in sales, and a Net Income of over $3 Billion (LexisNexis).  However, USAA remains true to its core purpose – to serve its members, those who serve in the United States military.

USAA is a private mutual company, owned by its members; its core product, property and casualty, is available only to its member-owners.  Until 1961, USAA membership was limited to active duty military officers; after 1961, those officers could retain their membership after their military service concluded.  In 1973, membership was extended to reserve officers, and in 1996, membership was extended to enlisted military personnel.  In 2010, USAA doubled its pool of potential members by opening membership to anyone who has served in the military and received an honorable discharge (Corporate Overview).   By limiting its property and casualty insurance to military members, USAA is able to limit its risk by offering insurance only to people who bear military values of honor and integrity; the company can more or less take members with claims at their word. The 2010 expansion to all veterans with an honorable discharge allows USAA to expand its customer base, but could present risk by adding members long out of the military culture and values.

USAA expanded its business in 1963 by offering life insurance (USAA Life Company), and again in 1983 by offering investment (Investment Management Company, IMCO) and banking services (USAA Federal Savings Bank, USAA FSB).  USAA also started the Alliance Services Company (ASC), which provides discounts to services like rental cars, jewelry, and flowers (Corporate Overview).  All four of these companies are wholly owned subsidiaries of USAA, and their services available to the general public, unlike the property and casualty insurance.

USAA has only eight physical locations, and its members are deployed around the world.   USAA Federal Savings Bank President recently described USAA as “an internet company before the internet was created.” (VanderMay) That is an apt description, because from day one USAA conducted its business primarily via telegram and mail; in 1978 the company offered a toll-free phone line.   USAA pioneered internet banking in 1999, allowing its members to safely conduct business online.  That level of innovation and flexibility is mirrored to this day; last year USAA offered the first iPhone application that would allow members to deposit checks using their phone’s camera, and the company routinely sends text messages with account balances to members deployed to Iraq or Afghanistan .  New USAA employees are trained to understand their military members’ experience by eating MREs (meals ready to eat), trying on Kevlar vests; each new employee receives an actual deployment letter that one of their members might receive (with names removed) so they can understand what USAA customers confront with deployments (McGregor).

Because of all this, USAA is famous for its customer service; in 2009 it was ranked #1 on the MSN Money Customer Service Hall of Fame, and it also won a similar honor from Bloomberg BusinessWeek in 2007 and 2008, along with the JD Power & Associates Chairman’s Award in 2002.  JD Powers, who conducted the Bloomberg surveys, found that 87% of respondents “would definitely buy” from USAA again, well above the 36% average.  That support of emblematic of USAA’s market dominance: in 1972 5 of 6 active duty officers was a member, and by 2003, 96% of officers and 44% of enlisted military men and women were members (McGregor).

USAA is also famous for its outstanding workplace; the company routinely is listed on the Fortune Top 100 Companies to Work For list (No. 17 in 2010), and in 2001 was named as one of both Working Mother magazine’s “100 Best Companies for Working Mothers” and LATINA Style Magazine’s “50 Best Companies for Latinas to Work in the United States.”   These accolades were earned as a result of progressive policies and benefits, including a four day, 38-hour workweek, college tuition reimbursement, business casual dress, and childcare facilities (Gale).

USAA was not always considered an attractive place to work; in the 1960s USAA grew significantly to over 650,000 members as a result of the Vietnam War, but it was highly disorganized.  For example, a new insurance policy required 55 steps to be performed in 32 different locations spread across four different floors.   Personnel problems were systemic, and the company suffered from turnover rates above 40% (Gale).  In 1969, Robert McDermott, retired Air Force Brigadier General, assumed the presidency and embarked on a modernization of the company through investment in technology and expansion of business offerings that ultimately made USAA the company it is today.

USAA is successful because of its core business products, provided to its military members.  Its cooperative structure provides financial strength, and allowed it to avoid many of the problems suffered by larger banks in the recent financial crisis.  While USAA now offers some of its financial products to the general public, it remains predominantly a company devoted to its members; the members share in the company’s success, through annual payments to Subscriber Savings Accounts.

 

Works Cited

“Corporate Overview – History.”  USAA.com, 30 Jan. 2011, Web.

Gale Directory of Company Histories, “USAA.” answers.com, 30 Jan  2011, Web.

LexisNexis Academic Company Reports.  “USAA.”  30 Jan. 2011, Web.

McGregor, Jena. “USAA’S BATTLE PLAN.” BusinessWeek 4168 (2010): 40-43. Academic Search Premier. EBSCO. Web. 30 Jan. 2011.

VanderMey, Anne.  “USAA succeeds in retail banking.”  Fortune, CNNMoney.com, 28 Jan. 2011.  Web, 30 Jan. 2011.

 

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Eisenhower’s military-industrial complex leads on sustainability

Dwight D. Eisenhower, President of the United ...

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In the current issue of The Atlantic, BU history professor Andrew J. Bacevich revisits two famous speeches by President Dwight D. Eisenhower.  One of them, his farewell address delivered on January 17, 1961, in which Eisenhower warned America about the dangers of what he called the “military-industrial complex,” gained a lot of attention in light of our latest wars:

“In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist. We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.”

Bacevich ties the farewell address to an earlier speech, delivered on April 16, 1953, known as the “Cross of Iron” speech.  Bacevich identifies a constant theme in the two speeches, that investment in the military-industrial complex is undesirable:

“The essence of this theme was simplicity itself: spending on arms and armies is inherently undesirable. Even when seemingly necessary, it constitutes a misappropriation of scarce resources. By diverting social capital from productive to destructive purposes, war and the preparation for war deplete, rather than enhance, a nation’s strength. And while assertions of military necessity might camouflage the costs entailed, they can never negate them altogether. “Every gun that is made,” Eisenhower told his listeners, “every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed.” Any nation that pours its treasure into the purchase of armaments is spending more than mere money. “It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children.”

In light of the calls for austerity and the reduction of our budget deficit, any reduction in military spending remain controversial; however, recent investment by both the Department of Defense and the military contractors in sustainability initiatives has also been heralded as a positive contribution towards fighting climate change.  The military is investing in biofuels, clean energy, and innovative new efficiency technologies.  Contractors like Lockheed Martin are investing in innovative new clean energy technology:

“There’s a concentrated solar array whose curved mirrors move to follow a light that mimics the passing sun. There are a pair of small buoys that show how energy from waves can be converted to electricity and sent back to shore through underwater coils. And there’s a model of a town and military outpost that demonstrate how micro-grid technology can better manage energy use and reroute supplies during outages.  [Matt] Kier doesn’t work for a alternative-energy startup. He’s an engineer for Lockheed Martin, one of the country’s largest defense contractors. And the display room, which the company calls its Energy Solutions Center, is nestled near fighter, space, electronics and cybersecurity displays just down the road from the Pentagon. Over the past two and a half years, the Department of Defense has undertaken an ambitious effort to cut its energy use, start tapping renewable sources and understand the impact of climate change on its operations. Each military branch has laid out energy targets and has goals for reducing fuel use in vehicle fleets and feeding bases with alternative energy. For example, the Navy has committed to getting half its energy from alternative sources by 2020 and by then expects it will use 8 million barrels of biofuel a year. As the military gears up to meet its energy goals, it will rely on defense companies to help plan, engineer and build a leaner, greener force.”

Interestingly, while Eisenhower worries, in his farewell address, that government direction of research and technology might endanger the “solitary inventor” and the “free university,” he also warns of a greater danger:

“As we peer into society’s future, we — you and I, and our government — must avoid the impulse to live only for today, plundering for our own ease and convenience the precious resources of tomorrow. We cannot mortgage the material assets of our grandchildren without risking the loss also of their political and spiritual heritage.”

While Eisenhower was arguing against the 1950s belief that we could have our guns with our butter, he also worried that we might waste our precious resources.  In light of our runaway greenhouse gas emissions, climate change, and growing resource scarcity, the investment by the DoD and our military defense contractors in sustainability and clean energy technology is true leadership.  While the Chamber of Commerce and companies like Koch Industries spend billions of dollars each year to fight climate scientists and confuse the public about climate change, the Department of Defense and its contractors are investing money in the technologies that will make significant contributions outside the realm of defense, like algae produced biofuels.  Eisenhower would surely be disheartened by the power that the defense industry holds over the public purse and policy, and yet I think he would be equally disheartened at the American failure to confront climate change seriously.  These initiatives by the DoD and defense contractors will not solve all of our problems, but they are a step in the right direction, one that Eisenhower would have applauded.


Our culture of disposability, and its costs

Van Jones spoke at a TED event in Santa Monica in November, about the economic injustice of plastic, and the culture of disposability that permeates our society.  He brings up a really interesting point when he compares the person who recycles their plastic water bottles and the person who throws them away. Typically, the person who recycles their bottle will feel satisfied that they are doing their part for the environment.  However, the cost of plastic manufacture and recycling are borne by the poor of the world.  The stretch of American known as ‘Cancer Alley,’ along 85 miles of the Mississippi River from Baton Rouge to New Orleans, produces plastic and petrochemicals, and has disproportionately high cancer rates.  Van Jones points out that plastic is often shipped to China for recycling, where more poor people process it.  When we satisfy our thirst conveniently with disposable containers, there are costs borne outside of the direct transaction, what economists call externalities.

However, our culture celebrates convenience and consumption, and many of us don’t understand the true costs of how we live.  Bill Gerlach talks about Mindful Consumption in his blog, The New Pursuit.  He writes about restoring our balance with the natural world, and becoming present to our lives, the world around us, and our place in it.  He offers some helpful strategies for mindful consumption, including buying less plastic, single-tasking, and pausing before making a purchase.  Becoming more mindful  is difficult in today’s world, with the litany of communication media, and our go-go-go lifestyles.   However, we have crucially lost touch with what it is that makes us human.  Thomas Berry, author of The Dream of the Earth, was a Catholic priest and a deep ecologist.  He wrote that our culture is distorted, and is “the origin of the deteriorating influence that we have on the life systems of the Earth.”  We would be smart to rethink our throwaway culture, because honestly, there is no ‘away.’


Addicted to Risk

Naomi Klein speaks at TED last month about how “our underlying assumption of limitlessness allows us to take the risk that we do.”  She looks at the Alberta Tar Sands, the BP Oil Spill, and our ever falling EROEI, and examines why we continue to see unending growth as the answer to all of our problems.


Our mental models and the financial crisis

Cover of "The Divine Right of Capital: De...

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Marjorie Kelly, in her book The Divine Right of Capital, constructs a bold critique of the role that stockholders play modern corporations.     She compares stockholders to the aristocratic feudal lords of yore, who made rent on “assets” into perpetuity without lifting a finger.  Instead, Kelly argues that both the employees who work to create corporate wealth, and the communities that provide the resources necessary to create that wealth, should earn a larger share of the wealth.  Kelly examines the framework of the corporation as it was first conceived, how the corporations in the United States were initially granted state charters to only serve the public good, and how that public purpose was eroded in our courts.  Examining the state of affairs today, Kelly concludes that all players, including stockholders, CEOs, Wall Street firms, and even you and I, are all complicit, but no one is guilty:

“We fool ourselves if we think we can find the enemy somewhere.  Our anger at the system leaves us like the farmer in The Grapes of Wrath, who when his farm was repossessed couldn’t find anyone to shoot.  There isn’t anyone to shoot.  The problem is our internal maps, and rethinking those can require some vilification of outmoded views.  But we must remember that we’re vilifying the value system of wealth discrimination – not the wealthy themselves.  Respect for the right to attain wealth is integral to the American psyche.”  (Kelly 99)

Kelly is absolutely right here; we all operate based on the internal maps, with their arbitrary assumptions and logic, to try to make a good life for ourselves.  Certainly, when one examines the litany of shenanigans that occurred in the recent financial crisis, it is easy to spot villains like Bernie Madoff; when reading deft accounts of the crisis, like Michael Lewis’s The Big Short, it is easy to ask how our economic game could be rigged as it is, and how we could have been so blind to the massive speculative bubble that would take down the global economy.  However, Lewis’s narrative is perhaps the most relevant to Kelly’s critique here, because the 20 or so people that saw the asset bubble for what it was were outliers, consistently critiqued by the establishment.  Their mental models were slightly off from the mainstream, most memorably Michael Burry, the one-eyed medical school graduate who was obsessed with the stock market from the age 12, and built a successful stock-picking blog that he wrote in the wee hours as a resident into his own hedge fund.    However, the majority of operators in our economy are simply following the rules of the game, to the best of their ability.  The idea of the American dream, which is echoed whenever a mother tells a child, ‘you can do anything you want,’ is a critical part of the American psyche.  Kelly is attempting to shift our mental models, so that we can see that our current paradigm doesn’t quite live up to the ideals of that American Dream; we are not the ‘Land of Opportunity’ we think we are.

Kelley identifies a critical fault in the current paradigm: the idea that shareholders ‘own’ the company, and the companies they own are required to maximize shareholder return above all other concerns.  Employees, who’s knowledge and ideas create the wealth of the 21st century, should under that paradigm be paid as little as possible.  However, Kelly brings a different mental model to bear:

“The principle is simple: efficiency is best served when gains go to those who create the wealth.  Thus, instead of aiming to pay employees as little as possible, corporations should distribute employee rewards based on contribution – while recognizing that in any humane social order, a living wage is the basic minimum.  Likewise, corporations might aim for a decent minimum stockholder gain but drop their focus on maximum gain.  The legitimate goal is reward based on contribution.  Since the contribution of stockholders has shrunk dramatically, their gains should shrink also.  It simply defies market principles to continue giving speculators the wealth that employees create.” (Kelly 108)

In light is the recent Global Financial Meltdown, it is helpful to consider what role those speculators played in the inflating asset bubbles, and the growth of subprime mortgage bonds into the dominant investment vehicle between 2005-7.  But step back for a moment and consider what would have happened if the rising productivity of the last decade were not entirely bequeathed to stockholders, but if employees got their share?  What if communities, instead of giving tax breaks to draw corporations like Boeing to move, instead received their share, and invested it in our crumbling infrastructure and public schools?  In short, both individuals and communities would bear some of the fruit of their own industry.  The system would be more efficient, and given the recent speculative disasters, we certainly wouldn’t be any worse off.

 

Works Cited

 

Kelly, Marjorie. The Divine Right of Capital.  San Francisco: Berrett-Koehler, 2003.  Print.

 


Susan Casey examines the power and danger that lurks in the sea

I have logged five years of sea time underway (between 1998-2008); I have sailed across the Indian Ocean and Northern Pacific Ocean; I spent significant time in the Western Pacific toiling around the typhoon laden waters circa Okinawa and Guam; I know what heavy seas (up to 20ft) feel like, having traversed ships using the bulkheads to step on from time to time.  I was always preternaturally calm in heavy seas, and I never took Dramamine. However, after reading Susan Casey’s book The Wave, I am newly aware of the great power that the sea has over man, the dangers that lurk in her, and the fears that rest in the heart of any merchant mariner worth their salt.  Incredibly, Casey learns, two large oceangoing ships sink each week globally, but that never makes its way into the media.  Like me, Casey is astonished:

“When I first read about the missing ships, I was astonished.  In the high tech marine world of radar, EPIRB, GPS, and satellite surveillance, how could hundreds of enormous vessels just get swallowed up by the sea?  And furthermore, how could this be happening without much media notice?  Imagine the headlines if even a single 747 slipped off the map with all its passengers and was never heard from again?”

Casey examines extreme waves in all their forms, from rogue waves, to typhoons, to tsunamis.  She speaks with wave scientists and big wave tow surfers, reads the Casualty Ledgers going back centuries at Lloyds of London, and discovers that there is still a lot we have to learn about how the ocean behaves, and how it will behave in the future as the planet warms.  Already, storm intensity is increasing, and in some areas like the Northern Pacific, wave energy is increasing.   Tsunamis, which can be as large as thousands of feet, are much more prevalent historically than we give them credit for.  In fact, according to scientists like Bill McGuire, the impending rise in sea level is going to increase the weight load on the Earth’s crust, which will lead to more volcanic and seismic activity, which increases the likelihood of tsunamis and earthquakes.

Aboard a modern Destroyer, I felt confident out at sea with the knowledge that we would know of bad weather before we found ourselves in it. Not only were the warships I sailed on laden with communications technology and protected by constant weather alerts and voyage navigation updates, but the ships were designed to survive in rough weather.  However, I wouldn’t feel so confident in a Bulk Carrier, what we used to refer to as a Group II Merchant.  A rogue wave can sink those vessels in less than one minute, after water floods into their holds.  Our modern, global economy is built to run through merchant ships.  The recent increase in piracy near the Horn of Africa shone a spotlight on the critical cog of global trade, but the sea promises to play an even bigger role.  But it is not just mariners and global companies who should worry about the power of the great waves; coastal residents, vulnerable to tsunamis and storm surges, should also be wary.  Casey interviewed Lloyds of London’s senior executive Neil Roberts, a specialist in marine activity, and outlines their expectations:

“[Lloyds of London expects] not only snarlier oceans and elevated sea levels, but more hurricanes, windstorms, storm surges, floods, earthquakes, wildfires, and droughts – all affecting more people and more property… ships had it rough out there, and sure, the losses were astonishing, but even these were dwarfed by Lloyd’s nightmare scenario: a disaster impacting the eastern seaboard of the United States, where over eight trillion dollars’ worth of coastal property, 111 million people, and half the U.S. GDP would be exposed.”

One scenario, identified by McGuire, involves the volcanic collapse of the Canary Islands, which could produce a massive tsunami that could hit the east coast of the United States in about nine hours.  The Wave is a timely examination of the power of the sea, one that I had trouble putting down at night.


Can we live up to Christina’s expectations?

Ross Douthat looks to the liberal blogosphere today and examines two perspectives on the source of overheated rhetoric.  He compares Paul Krugman’s opinion (“the truth is that we are a deeply divided nation and are likely to remain one for a long time”) to the more pragmatic view of Matt Yglesias (“that we have a kind of furious partisan debate despite the fact that we don’t see large disagreements about the basic principles of welfare state capitalism.”)  Douthat comes down on the side of Yglesias:

“All the sound and fury of partisan warfare is just a way to deceive ourselves into thinking there’s something more important at stake in each election than special interests jockeying for control of the fiscal commons. Our debates are so furious, in this reading, because our disagreements aren’t that significant: We rely on apocalyptic rhetoric about socialism and fascism, tyranny and freedom, to persuade ourselves that we’re actors in a world-historical drama, rather than just interest groups feuding over the spoils of governing a prosperous but somewhat decadent republic… most Americans don’t actually disagree strongly about whether we should have a stronger safety net or a more limited government. They think, in a vague and none-too-consistent fashion, that we should have both at once — low taxes and expensive entitlements, subsidies for me but not for thee, a go-go free market when G.D.P. is rising but a protective government ready to save us from our foolishness when the economy goes bad, and so on.”

Douthat goes on to say that the overheated rhetoric is merely an effort by the minorities of each party on the left and the right to convince moderates that much as at stake.  By Douthat’s logic, the Republican Party opposes the Affordable Care Act and the Dodd-Frank Wal Street Reform Act mainly because they don’t trust Democrats, but otherwise their policy of choice would be similar.  Douthat is right that many Americans want expensive entitlements yet don’t want to pay for them with taxes, but the Republican Party is losing its few remaining moderates minute-by minute.  The problem with his analysis is that the policy proposals of the Republican Party consistently call (since the time of Reagan) for the removal the Federal government’s power, in the words of Grover Norquist, “reduc[ing] it to the size where I can drag it into the bathroom and drown it in the bathtub.”  The Tea Party has taken over the Republican Party, and put in power people like Ron Paul who wants to End the Fed, and who now is in charge of oversight of the Fed.  Health care did not come down to distinctions about abortion and euthanasia: opponents made it clear from day one that they viewed the act as socialist tyranny.  The Republicans simply do not wish to govern from the center.

Which takes us back to the original point.  Douthat claims that the overheated rhetoric is simply political football, practiced equally by each side. George Packer makes clear today that in fact one side makes violent rhetoric an art form, a calling card:

“In fact, there is no balance—none whatsoever. Only one side has made the rhetoric of armed revolt against an oppressive tyranny the guiding spirit of its grassroots movement and its midterm campaign. Only one side routinely invokes the Second Amendment as a form of swagger and intimidation, not-so-coyly conflating rights with threats. Only one side’s activists bring guns to democratic political gatherings. Only one side has a popular national TV host who uses his platform to indoctrinate viewers in the conviction that the President is an alien, totalitarian menace to the country. Only one side fills the AM waves with rage and incendiary falsehoods. Only one side has an iconic leader, with a devoted grassroots following, who can’t stop using violent imagery and dividing her countrymen into us and them, real and fake. Any sentient American knows which side that is; to argue otherwise is disingenuous.”

There are distinct differences between the right and the left; the big problems we will face, including Climate Change, long-term entitlement reform, and resource scarcity, will require elected officials on all sides who are willing to work together.  Unfortunately, the political dynamite that George Packer describes will prevent much from being accomplished in the next two years.  The Republican Party and its Tea Party majority are happy to wait for 2012 and continue their cries of socialist tyranny all the way to Election Day.