The United Services Automobile Association (USAA) is a Texas-based Fortune 500 diversified financial services group of companies including a Texas Department of Insurance regulated reciprocal inter-insurance exchange and subsidiaries offering banking, investing, and insurance to people and families that serve, or served, in the United States military. At the end of 2014, there were 10.7 million members.
USAA was founded in 1922 by a group of U.S. Army officers as a mechanism for mutual self-insurance when they were unable to secure auto insurance because of the perception that they, as military officers, were a high-risk group. USAA has since expanded to offer banking and insurance services to past and present members of the Armed Forces, officers and enlisted, and their immediate families.
The company was one of the pioneers of direct marketing and most of its business is conducted over the Internet or telephone using employees instead of agents.
History
The organization was originally called the United States Army Automobile Association. In 1924, the name was changed to United Services Automobile Association, when commissioned officers of other U.S. military services became eligible for membership. The company opened offices in Frankfurt, Germany, and London, England early in its history.
USAA is headquartered in San Antonio, Texas, occupying 286 acres (116 ha) (a former horse farm) in a large single-occupancy office building on the city's northwest side.
USAA is a pioneer of the concept of direct marketing; most of its business is conducted over the Internet or telephone using employees instead of agents. Until the 1960s the bulk of its business was conducted via mail. In the late 1960s, USAA began a transition from mail to phone-based sales and service. A toll-free number was launched in 1978, and Internet sales and service were launched in 1999 via its website.
The organization started offering homeowner's and life insurance in the 1960s, and brokerage and investment management services in the 1970s, and banking services in the 1980s.
Prior to 1996, eligibility for USAA membership was limited to commissioned officers in the U.S. armed forces, cadets and midshipmen at the U.S. service academies eligible to have a personal car, cadets and midshipmen in college and university ROTC programs, college and university students in the Marine Corps PLC or Navy AVROC programs, or college graduate officer candidates/officer trainees in the OCS programs of the Army, Navy, Marine Corps and Coast Guard, or the Air Force OTS program. In 1996, eligibility was extended to enlisted personnel in the U.S. armed forces.
USAA offered restricted membership to civilians between September 2009 and August 2013. This membership provided access to USAA's investment products, most bank deposit products, and life insurance. Auto and property insurance policies were not included for non-military members due to eligibility restrictions.
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Lines of business
Property, casualty, and life insurance
USAA offers a range of personal property and casualty (P&C) insurance, including automobile insurance, homeowner insurance, renters insurance, as well as umbrella and personal property insurance. In addition to P&C insurance, USAA provides whole life insurance, term life insurance, and annuities. USAA's life insurance policies, while not completely unique in the industry, are different from most offerings since they do not include a war-exclusion clause
Banking
Banking services are provided by USAA Federal Savings Bank. The bank was established on December 30, 1983. According to the FDIC, as of June 2011, USAA held over $43.8 billion in deposits with more than 6.3 million accounts.
USAA Federal Savings Bank's bank lobby located in San Antonio is its only full-service banking location. Other cities, however, hold financial centers, often near military bases, which provide advice and assistance in obtaining services of any kind offered by USAA, in addition to opening those accounts online. Limited service locations (or 'financial centers') cannot process deposits or withdrawals, other than those conducted at USAA ATMs located at the financial centers; ATM, in addition to teller withdrawals and deposits may also be made at the bank lobby in San Antonio, Texas.
Banking services can be accessed in person, by mail, by phone, or through the internet. USAA Federal Savings Bank provides members with the ability to deposit checks to their accounts using mobile applications on the iPhone, mobile devices with Google's Android operating system, and Microsoft's Windows Phone. Members are also able to take advantage of USAA's UPS deposit option, called Easy Deposits, where members are able to deposit personal as well as business checks via UPS directly to their accounts.
USAA also offers ATM fee rebates (up to $15/month), free standard checks for the life of the account, free online bill pay, and bank-by-mail services. USAA was one of the few major banks to begin offering American Express cards in 2006 in addition to their traditional offering of Mastercard.
Major banking competitors include Bank of America-Military Bank, Pentagon Federal Credit Union, and the Navy Federal Credit Union.
Investing and financial planning
USAA provides a discount brokerage service and a family of no-load mutual funds. Mutual funds established by other companies and can be purchased as well as held by USAA investment accounts (or IMCO). USAA also offers free financial advice to members, as well as services which require agreement to pay a given fixed rate for services such as financial planning service.
Other business
Through its Alliance Services Company (ASC), USAA runs a mail-order catalog service specializing in the sale of diamonds and jewelry. In addition to the above, ASC has secured a variety of discounted services for its members. These include travel-related services obtained through rental car alliances with Avis Budget Group and Hertz Corporation, for example, as well as discounts on cruise travel. Their retail alliances incorporate others such as FTD, FedEx, and ADT Security Services.
For its own investment purposes, USAA 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 indicates its focus to serve its niche market, which consists of members of the U.S. military and their immediate families. To that end, the Association has always marketed directly to members of the U.S. military. USAA membership is offered to officers and enlisted personnel, including those on active duty, those in the National Guard and Reserve, Officer candidates in commissioning programs (Academy, ROTC, OCS/OTS) and all those who have served in the aforementioned categories and who have retired or have been discharged honorably. Children of USAA members are also eligible to purchase USAA's P&C insurance products, and former members of USAA are allowed to resume membership at any time (without an age limit).
Eligibility can be determined using its website; however, the site does not contain a comprehensive statement of eligibility. 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, CI and CID), U.S. Foreign Service Officers, and officers from a variety of other smaller agencies. Recently, USAA has been sharpening its focus on members of the military. So, people working for certain non-military agencies that were accommodated in the past may find that they are no longer eligible.
Historically, only U.S. military officers (among certain 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. In 1973, membership was opened to members of the National Guard and Reserves, and in 1996, eligibility was expanded to enlisted members of the armed services. As the number of persons who have served on active duty in an enlisted status in the U.S. Armed Forces is quite large, USAA chose to limit the establishment of eligibility to those who were currently on active duty or who had recently separated. The same time limit on establishment of eligibility was then applied to military officers. As USAA's capacity for taking on new members expanded, eligibility criteria relaxed. In 2008, USAA expanded membership eligibility to all military personnel and retirees, and all veterans who separated after 1996. In November 2009, USAA expanded eligibility requirements to offer coverage to anyone who has ever served honorably in the US Military.
Auto and property insurance and some banking services require that the customer meet membership eligibility criteria. USAA investment products as well as deposit-only banking services are available to non-members.
Of the top ten automobile insurance competitors, USAA is the only provider that restricts service to members of the United States military and their immediate families.
Legal structure
One of the characteristics that allows USAA to operate differently than most other Fortune 500 companies is that it is not a corporation. The 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 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.
Other insurance services are provided by a variety of wholly owned subsidiaries. Adult children of USAA members and U.S. military junior enlisted personnel make up a group known at USAA as "associate members" insured through a subsidiary called USAA-Casualty Insurance Company (USAA-CIC). USAA-CIC is not an insurance exchange but rather a Delaware Insurance Corporation. This is a subtle nuance but is important concerning the return of profits - described below. Non-standard-risk drivers are insured by subsidiaries like USAA's County Mutual Insurance Company or USAA-General Indemnity Company. USAA also insures members in Europe through its subsidiary, USAA Limited. It is uncommon for a U.S. based insurance company to provide international P&C coverage, but USAA does so because so many military families are stationed out-of-country.
Returning profits to the insured
Since there are no shareholders, profits are retained for financial strength or returned to the members. Returns are accomplished through a Subscriber's Account, commonly known as a distribution. Each year a portion of USAA's profit is retained as "unassigned," the rest is allocated to each member's Subscriber's Account using a formula based on the amount of premium the member paid that year as well as the member's Subscriber's Account balance. The allocation of capital to a member's Subscriber's Account occurs early in the calendar year. Late in the calendar year a portion of the member's Subscriber's Account is distributed to the member via checks or electronic funds transfer. Members with more than 40 years of membership also receive a special yearly "senior bonus" distribution which amounts to 10% of the member's Subscriber's Account balance. The entirety of the Subscriber's Account belongs to the member, but is not completely distributed until approximately 6 months after the member no longer has a USAA P&C policy.
Those not eligible to join USAA but who are eligible to purchase insurance from USAA's subsidiaries, such as USAA-CIC, may receive dividends as declared by USAA.
Miscellaneous information
Besides its headquarters in San Antonio, USAA has a second major office in Phoenix, AZ, and other operations in Colorado Springs, CO; Norfolk, VA; Tampa, FL; Highland Falls, NY; London, England and Frankfurt, Germany.
The company also operates Financial Centers in Annapolis, MD; Arlington, VA; Clarksville, TN; Colorado Springs, CO; Columbus, GA; El Paso, TX; Fayetteville, NC; Highland Falls, NY; Jacksonville, NC; Junction City, KS; Killeen, TX; Oceanside, CA; San Antonio, TX; San Diego, CA; Virginia Beach, VA and Washington, D.C..
Leadership
USAA Chairman of the Board Gen. Lester Lyles, USAF (Ret.), announced on Aug. 28, 2014 that USAA's Chief Operating Officer Stuart Parker has been named to succeed current CEO Joe Robles when he retires at the end of February 2015. USAA Capital Corporation President Carl Liebert will succeed Parker in the role of chief operating officer, effective immediately. Parker is a former USAF officer. He has been with USAA for 16 years, serving in various positions, most recently as COO and CFO. Liebert is a former U.S. Navy officer, and joined the USAA management team in 2013.
USAA experienced much growth under its former CEO, retired Air Force Brigadier General Robert F. McDermott. The USAA building was constructed under his tenure and McDermott was behind USAA's shift from service-by-mail to service-by-phone. He was succeeded as CEO by retired Air Force General Robert Herres. It was under Herres that USAA expanded its services to enlisted members of the military and developed Internet based financial services. Following General Herres as CEO was Robert G. Davis, a former Army officer who came to USAA with experience in a variety of financial services companies. Davis is said to have changed the culture at USAA; during his time at USAA, membership, assets and net worth grew significantly. His tenure, however, was not without controversy. Davis oversaw USAA's first layoffs and by some reports had a confrontational style of leadership. Davis had indicated to USAA employees that he intended to continue to lead USAA until 2010, however, he retired in December 2007. The nature of his retirement seems to have been precipitous, as current USAA CEO Josue Robles has stated that upon assuming the role of CEO, "I thought I was just going to be a temporary CEO and (the board) said, 'Guess what? The permanent CEO is you'."
Oversight
USAA is subject to insurance regulation and examination by state regulators as well as federal entities like the U.S. Securities and Exchange Commission, Federal Trade Commission and FDIC. Its records are audited by Ernst & Young as well as the major financial rating agencies, who rate both USAA and many of its subsidiaries.
Service ratings
USAA has consistently received the highest customer service ratings available to financial services companies, including those not in its niche. For its highly rated customer service, in 2002 JD Power awarded USAA with its Chairman's Award, which at that time had been awarded to ten companies, none of them in the financial services arena.
A 2007 Forrester Research report identified USAA as the leader in customer advocacy based on a customer survey. USAA retained the top spot on Forrester Research's study in 2008 and 2009.
In its May 2009 issue, Consumer Reports named USAA's brokerage division as the top rated discount brokerage service in the United States.
In a survey of 145 companies conducted by Zogby International, USAA ranked #1 in customer service out of 145 American companies.
Employment
USAA employs more than 23,400 personnel at its offices throughout the country.
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