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USAA

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United Services Automobile Association
Company typePrivate
IndustryFinancial Services
Founded1922
HeadquartersSan Antonio, Texas, USA
Key people
Robert G. Davis, Chairman & CEO
Tim Handren, COO
Joe Robles, CFO
Greg Schwartz, CIO
ProductsInsurance, Banking, Investing
RevenueIncrease$11.980 billion USD (2005)
Number of employees
~21,900 (2005)
Websitewww.usaa.com

United Services Automobile Association (USAA) is a Fortune 500 financial services business which specializes in serving military members and their families. It was founded in 1922 by a group of US Army officers to self-insure each other when they were unable to secure auto insurance due to the perception that they were a high-risk group. It has expanded to provide both military officers and enlisted members of all US Armed Forces and their descendants an array of property & casualty insurance, banking, life insurance, and investment services. USAA was one of the pioneers of direct marketing and most of its business is conducted over the telephone or the internet.

Lines of Business

Insurance

The principal operating entity at USAA group is a reciprocal interinsurance exchange; this unincorporated property and casualty (P&C)insurer issues cross-indemnified P&C insurance policies to 2.2.million members, principally members of the US Military. Life Insurance, property and casualty insurance for those who are not canonical members of the reciprocal interinsurance exchange, other financial products (such as mutual fund brokerage), and Real Estate Investment activities are provided by a variety of Delaware Insurance Corporation, the capital stock of which are owned by the unincorporated financial holding company known as USAA Group. The record is unclear on the exact identity of the owners of USAA Group, which is unincorporated.

Adult children of USAA members, as well as military enlisted personnel with less than 4 years of active military service, make up over another class of members known at USAA as "associate members". Associate members are eligible to be insured through a Delaware corporation subsidiary called USAA-Casualty Insurance Company (USAA-CIC). Unlike its putative parent, SAA-CIC is not an insurance exchange but rather a Delaware Insurance Corporation. This is a subtle nuance but is somewhat important when it comes to the return of USAA's profits which is discussed below.

High-risk drivers who don't meet USAA's relatively strict underwriting criteria are insured by a different subsidiary, such as USAA's County Mutual Insurance Company or USAA-General Indemnity Company. USAA also insures military drivers in Europe through yet another subsidiary, USAA Limited; this international coverage is perhaps unique for a company based in the United States.

USAA also issues life insurance. USAA's life insurance policies are perhaps unique that they do not include a war-exclusion clause.

Unlike many of its competitors, USAA does not sell its insurance through insurance agents; rather, both life and P&C policies are sold by directly by salaried USAA employees to members over the telephone. No commissions are paid for policies written.

In 2005 USAA paid over $6 billion in property & casualty claims.

Banking

Banking services are provided by USAA Federal Savings Bank, credit cards by USAA Savings Bank. The bank was established in the early 1980s. According to the FDIC, as of June 2006 the bank held $20 billion in deposits with over 2.5 million accounts. The bank has one ___location at USAA headquarters in San Antonio, TX; because most members don't actually live in San Antonio, the bank provides ATM fee rebates, internet services, bank-by-mail services as well as overnight deposit services available through UPS Stores. USAA was one of the few major banks to begin offering American Express cards in 2006 in addition to their traditional offerings of Mastercards and Visas.

Investing

USAA provides a discount brokerage service and a family of no-load mutual funds; mutual funds established by other companies can also be purchased and held in a USAA investing account. USAA also offers limited free Financial Planning advice as well as a more thorough flat-fee or hourly-rate financial planning service.

Other Services

USAA also runs a mail-order catalog service which, among other things, is known for diamonds & other jewelry; it has also made arrangements with other companies who provide discounts to USAA members on rental cars (Avis, Hertz, Budget), flower delivery (TeleFlora), cruises, home security, home warranties and FedEx services. For its own investment purposes, USAA also operates a real estate company which has holdings including major office buildings, industrial buildings, hotels, and other properties throughout the country.

Target Market

USAA's mission statement (see below) indicates its focus is to serve its niche market, which consists of members of the military and their families. To that end, they have always marketed directly to members of the military.

USAA's website does not contain a comprehensive statement of eligibility. While the USAA website indicates that membership is open primarily to military personnel and their dependants, USAA has, in the past, published a list of other eligible persons including special agents of the FBI and Secret Service, agents of the various military investigative services(NCIS, OSI, and CID), U.S. Foreign Service Officers, and officers from a variety of other smaller agencies. Recently USAA has been sharpening its focus on service to members of the military and those federal officers who may have been accommodated in the past may find that they are no longer able to establish eligibility.

Formerly, while USAA did not market to anyone outside its niche, they would open bank accounts, issue life insurance policies, and open investment accounts for anyone who called their offices requesting USAA's services. Recently, however, USAA has chosen to further focus only on its target market, and will not extend banking services to those who are not eligible to purchase property & casualty insurance policies. In addition, recent internet rumors indicate they are also limiting issuance of life insurance policies to those in their niche; this is currently unsubstantiated. Investment services are still open to the general public.

Historically, only military officers (among other federally sworn officers) were eligible to join USAA, with descendants of USAA members able to purchase insurance from USAA-CIC. It did not matter if one was an active duty or retired officer, one could join at any time. However, in the late 1990s, USAA chose to expand eligibility to enlisted members of the armed services. As the number of persons who have served on active duty in an enlisted status in the US Armed Forces is quite large, USAA chose to limit the establishment of eligibility only to those who are currently on active duty or who have recently separated. The same time limit on establishment of eligibility was then applied to military officers, thus achieving a symmetric policy.

History

USAA was founded as the United States Army Automobile Association in 1922. Within a year, it was almost bankrupt, through a series of events including a new leader and expansion to serve all military officers as the United Services Automobile Association, it regained solid footing.

It has always been headquartered in San Antonio, Tx. One of its earliest buildings is located on Grayson Street across from the Quadrangle of Fort Sam Houston. While the building is in disrepair, it still bears the shield of "USAAA". After some time, it moved to Hildebrand & Broadway near Brackenridge park, in what has become one of the AT&T buildings. In the early 1980s, it moved once again to its current headquarters in Northwest San Antonio; its large campus spreads out on 286 acres on what was formerly a horse farm.

One of the characteristics that allows USAA to operate differently than almost every other Fortune 500 company is that it is not a corporation. The parent company, United Services Automobile Association is an inter-insurance exchange, the establishment of which is provided for under the Texas Insurance Code. This insurance exchange is made up of all current and former military officers and NCOs who have taken out P&C policies with USAA; thus they simultaneously are insured by each other and, as a group, own USAA's assets. Theoretically, this implies that each member could be held completely responsible for all the losses of all the other members. However, the insurance code (Sec 942.142) stipulates that should an entity such as USAA accrue a substantial amount of assets, member liability is limited only to the premiums they have paid to USAA. In other words, if an enormous disaster were to result in claims that would wipe out all the assets of USAA, individual members could not legally be called upon to pay for any amount USAA is unable to pay out in claims.

SSA

As there are no shareholders, the unique structure of USAA means that profits are only either returned to members or retained for reserves. This is accomplished through an account each member has which is called the Subscriber Savings Account, or SSA. Each year a portion of USAA's profit is retained as "unassigned", the rest is distributed to each member's SSA using a formula that takes into account the member's current SSA balance as well as the amount of premium the member paid in that year. A short time later (usually in November or December), USAA determines what portion can safely be released to each member in the form of a premium credit or check. While the entirety of the SSA belongs to the member, it is only released in full to a member if the member no longer has a USAA policy.

Associate members sometimes receive policy dividends instead of distributions of profits, since they are not members of the insurance exchange.

Miscellaneous Information

USAA has offices at its headquarters in San Antonio, TX, a second major office in Phoenix, AZ, as well as other smaller operations in Sacramento, CA, Colorado Springs, CO, Tampa, FL, Norfolk, VA, Highland Falls, NY, London, England and Frankfurt, Germany.

As of 2005 USAA had over $96 billion in assets under management for approximately 5.6 million members. Its revenues placed it as number 189 on the 2006 Fortune 500 list.

USAA owes a great deal of its success and expansive growth to former CEO, retired Air Force Brigadier General Robert F. McDermott. He was succeeded by retired Air Force General Robert T. Herres.

The USAA building is said to be the largest office building in the country.

Since it's not a corporation, USAA is not bound by the same corporate governance rules that govern major publicly traded companies. Even so, USAA is subject to insurance regulation and examination by all the states it does business in. In addition, its records are audited by Ernst & Young as well as the major financial rating agencies.

USAA claims over 5 million members; this counts those doing business with any of USAA's financial services companies who are eligible to purchase property & casualty insurance, whether or not they are actually holding a policy.

The stated mission of USAA is to facilitate the financial security of its members, associates and their families through provision of a full range of highly competitive financial products and services; in so doing, USAA seeks to be the provider of choice for the military community.

Ratings

Financial Stability

Customer Service

USAA consistently receives the highest customer service ratings available to all financial services companies, not just those in its niche. For its consistently highly-rated customer service, in 2002 JD Power awarded USAA with its Chairman's Award, which at that time had only been awarded to 10 companies, none of them in the financial services arena. Since then, USAA has remained at the top of the JD Power ratings for auto and home insurance and mortgages.

Employment

USAA employs over 21,000 personnel at its offices throughout the country, and is frequently cited as a top place to work. It is one of a dwindling number of companies that continues to offer a defined-benefit pension plan as well as a 401(k) with matching, tuition reimbursement, onsite fitness & day care centers, as well as USAA membership. USAA employees from the entry-level service representative to the executive level routinely receive annual bonuses of well over 10% of their regular yearly salary. USAA, like every large business, is not without controversy. In the early part of this decade it did lay off approximately 1,400 workers, some of whom were IT specialists. They then outsourced part of their IT work, which caused a stir in the local San Antonio media. Nevertheless, USAA continues to be recognized as one of the best places to work in IT [1].

Competition

In focusing its efforts to serve only its niche, USAA is unique in that it is a Fortune 200 company who seeks only to compete with companies which are, with the exception of property & casualty insurers, not as large or nationally established.

Insurance

GEICO is a major property & casualty insurance competitor, while life insurance competitors include the government's own Servicemembers' Group Life Insurance, the AAFMAA (Army and Air Force Mutual Aid Association), and the USBA.

Banking

Major bank competitors include Bank of America-Military Bank, Pentagon Federal Credit Union, Navy Federal Credit Union, along with other smaller local military banks and credit unions.

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