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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