USAA is a diversified insurance and financial services company patronized primarily by officers in the U.S. military and their dependents. The country's fifth largest auto insurer and fourth largest home insurance company, USAA was founded in Texas in the 1920s as a mutual association, so that military officers, who moved frequently, could obtain automobile insurance. Led by a series of retired officers, who managed its assets and operations conservatively, USAA grew steadily throughout the century, as successive wars and military build-ups increased its pool of eligible members. In the 1970s and 1980s, USAA began to branch out into additional financial services related to its insurance business, and with its customer base of loyal and reliable members, the company grew rapidly in size and financial strength.
USAA was founded in 1922, when Major William Henry Garrison called together 24 of his fellow Army officers at the Gunter Hotel in San Antonio, Texas. The purpose of the meeting was to discuss solutions to the problem of automobile insurance for army officers. Because of their frequent moves, officers often found that their policies were extremely expensive and prone to cancellation. Moreover, many insurance companies were unreliable and failed with some regularity, leaving their former policyholders without insurance.
The 25 men present at Garrison's meeting decided to form a mutual company, in which they would insure each other. They took as their model the Army Cooperative Fire Insurance Company--based at Fort Leavenworth since 1887--and called the new enterprise the United States Army Automobile Association. An agreement was signed, and a president, vice-president, and board of directors were established, all of whom were active duty army officers. Shortly thereafter, a manager named Harold Dutton was also hired, and he set up an office at Kelly Field in San Antonio. The new firm issued its first policy to Major Walker Moore for his 1922 Elcar. He was charged $114.47.
Within two months, USAA had enrolled 142 members, and proceeds from their policies totaled $820. Ten months later, however, USAA had a deficit of more than $3,000, caused by its failure to accurately estimate the cost of an insurance policy. In an effort to compensate for the shortfall in funds, USAA's board voted at its first annual meeting to extend membership to all active duty and retired officers of the U. S. Navy and Marine Corps. The company's name was changed to reflect this broader constituency, becoming the United Services Automobile Association.
The 1924 annual meeting also resulted in a vote to adopt an industry standard for insurance premiums, minus a discount of 20 percent. In addition, the company's leaders applied for a Texas license, declared an eight percent dividend, and established a reserve for losses. By the end of the year, the company had more than 3,300 members and assets exceeding $85,000.
Two years later, in an effort to foster growth, USAA's board designated funds for advertising. With $1,500, the company mailed a flier to all eligible officers and put an ad in the Service Journal. In addition, the company bought 6,000 company emblems which it sold to members for display on the hoods of their cars. These symbols soon became popular among members and served to promote the company.
By 1927, USAA's business was thriving. Its management, however, was in chaos. The board of directors had split, and a break-away group had begun meeting in secret, plotting to overthrow the company. At the same time, USAA's secretary-treasurer and general manager were engaged in struggle for control of the company. After a six-hour board meeting, during which power changed hands repeatedly, it was determined that a new leader was needed from outside the company to restore member's faith in USAA's leadership. Thus, on January 1, 1928, Major General Ernest Hinds, commanding general of Fort Sam Houston in Texas, became both the general manager and secretary-treasurer of USAA. Assured that he would have complete control of the company, Hinds took over. The company then had 7,500 members and more than $300,000 in assets.
Less than two years after Hinds assumed command, the crash of the stock market plunged the United States into the Great Depression. Under Hinds' leadership, USAA invested its money in government securities early on in the financial crisis. These safe bonds prevented the company from losing large sums of money in the volatile financial markets. When USAA did invest in the stock market, it did so conservatively, limiting its exposure to $20,000.
An unexpected side effect of the Depression was that cars bearing the USAA hood emblem became the special targets of thieves, causing the company to discontinue distribution of the symbols. USAA adopted another preventive measure in 1938, introducing its first Safe Driver Reward Plan, which enrolled a majority of the company's members.
By 1941, at the onset of World War II, USAA's membership exceeded 22,000, and its assets had increased five-fold over the last decade. The company continued to grow throughout the war and instituted a practice of sending telegrams and updating policies when soldiers who had been declared missing in action or had been taken prisoner resurfaced. As a result of the war, and the vast number of men conscripted into the military, the number of potential USAA members grew exponentially. By 1947, the company's annual business had doubled over the last six years, and its membership had increased by more than a third.
In 1948, USAA opened its first office outside San Antonio, in New York City. This step was taken in order to qualify the company to write insurance policies for people who lived in New York. Even further afield, USAA opened an office in Frankfurt, to serve members of the American occupation forces in Europe.
During the late 1940s, USAA's business grew rapidly, aided by the cold war and compulsory ROTC programs on the campuses of land-grant colleges. The company's revenues doubled between 1948 and 1949, and then doubled again by 1952. The following year, when the company's offices on Grayson Street in San Antonio had become badly overcrowded, USAA's board of directors agreed to spend $6 million to construct a new facility in the city. With a modern new facility, containing such amenities as an employee cafeteria, the company hoped to lessen its employee turnover rate of more than 100 percent a year. By 1956, the new building on Broadway was complete, and the company's 802 employees, nearly all of whom were female, had been installed.
That year, USAA's bylaws were altered to modernize the company's corporate structure. The company's general manager was named president, and his assistants were named vice-presidents. This change was made to accommodate USAA's ever-expanding operations, after the company's business had doubled again by 1955. In 1957, USAA installed an IBM 650 computer, the first move in the drive to automate its cumbersome operations.
Within five years, the company's new facilities were again deemed inadequate. In 1962, USAA added 110,000 more square feet to its building and began conversion to a newer, larger computer system, the IBM 7074-1041. Also during this time, the board of directors amended the bylaws to enable the company to offer life insurance, along with property and casualty insurance. With $5 million in seed money, the company began to organize the USAA Life Company.
By 1967, USAA's assets had reached $206 million, and its membership topped 650,000, a rapid rate of growth attributed to the mass mobilization of troops to fight in Vietnam. In 1969, the company's presidency was assumed by Robert F. McDermott, a retired Air Force brigadier general who had previously been Dean of the Faculty at the Air Force Academy. McDermott set out to reform the company, instituting more modern, streamlined procedures to improve employee morale and customer service.
Such reform was necessitated largely by USAA's failure to implement adequate computer systems. For example, in the late 1960s, the company was still keeping separate claims and underwriting files on each of its members. In order for a new insurance policy to be issued, 55 steps had to be performed, in 32 different locations, spread across four separate floors. Files piled up on employees' desks and were continually misplaced. The company hired dozens of college students to come to its offices every night to search, often in vain, for missing folders.
Moreover, the many separate units of USAA had poor lines of communication, and personnel problems at the company were rampant. Managers were promoted solely on the basis of seniority, which often caused friction, and many jobs were regarded as repetitious and boring, as some people were assigned such tasks as unsealing envelopes and pulling staples. Not surprisingly, the annual turnover rate stood at 43 percent.
Under McDermott, numerous changes were made. The company reduced its number of employees by more than 800 through attrition by the end of 1969. Those employees who remained were given much broader job descriptions, in an effort to increase their interest in their work. To make sure they were able to perform new tasks, USAA inaugurated a new program of extensive employee training.
In addition, USAA invested heavily in computers and telecommunications to improve service to its members. With new computers, USAA was able to make several important changes. Instead of writing a separate insurance policy for each car, for instance, the company began to write multi-car policies. With this shift, USAA was able to eliminate hundreds of employee slots and also reduce the cyclical nature of its business, spreading its workload more evenly throughout the year.
Furthermore, USAA restructured its organization, dividing members by geography, rather than by type of policy issued. Under this new structure, company leaders devised a 20-year plan for growth prompted by the results of a member survey, which asked whether a more diverse line of services would be appreciated. Respondents to the survey indicated that they would be interested in several additional financial services, including mortgage loans, auto financing and leasing, mutual funds, and a bank. Car-related services, such as an auto travel club, were also deemed desirable. This data paved the way for USAA's eventual diversification into several fields outside the insurance business. However, development of these new fields would not begin for several years, since the company's board of directors balked at this radical revision of the company's scope.
In 1973, USAA bylaws were revised to allow officers in the National Guard and the military reserves eligible for membership, as well as military dependents. Members from these groups soon made up a large part of the company's business. A centralized training and education facility was developed during this time, and the company moved from its overcrowded offices to a new building, situated on 286 acres in northwest San Antonio. This facility became the world's largest private office building. With tennis courts, picnic tables, four cafeterias, and a company store, it was designed to enhance employee satisfaction on the job. The company also instituted a four-day work week to provide its workers with more flexible hours.
Along with the main San Antonio facility, USAA opened several smaller, satellite offices in areas around the country with large concentrations of military personnel, including Sacramento, Seattle, Colorado Springs, Tampa, and the Virginia cities of Norfolk and Reston. A second overseas office was opened in London.
After an amendment in the company's by-laws, USAA finally moved to provide a greater number of services for its members. Organizing new functions under subsidiaries, the company added the USAA Life Insurance Company and the USAA Investment Management Company, or IMCO, which managed a number of mutual funds. USAA also began to offer a discount brokerage service.
In the 1980s, the USAA Federal Savings Bank was founded, establishing lucrative Visa and MasterCard operations, mortgage and home equity loans, deposit services, and consumer loans. USAA also set up a travel agency and began to offer real estate investment opportunities. The move directly into the real estate market was realized with the completion of USAA Towers, a 23-story retirement community, and USAA Parklane West, a medical care facility. Each of these new enterprises made a broader range of services available to USAA members and also contributed to the company's overall net worth.
By the early 1990s, USAA's diversified business lines were thriving. The Life Insurance Company, carrying policies totaling more than $46 billion, was the country's 43rd largest life insurance company; within three years, it ranked 37th on the list, with $57.4 billion worth of policies written. The company's bank, USAA Federal Savings Bank, reported over $3.5 billion in assets, had issued more than 1.5 million credit cards, and had become one of the five largest savings and loan institutions in the United States. In addition, USAA had also inaugurated a joint program with Sprint, to provide discount telephone services to its customers.
By 1993, USAA's owned and managed assets had reached $33 billion, as the company, in its broadened guise, became the 21st largest American diversified financial services company in the Fortune Service 500. USAA's attention to employee morale and training had also won praise, and it was named one of the ten best companies to work for in America. With a loyal and well-trained corps of employees, and a smooth-running operation that ran with precision, USAA appeared well situated to continue its growth and solid financial success well into the 21st century under the leadership of new chairman and CEO, Gen. Robert T. Harris, USAF (Ret.).
Principal Subsidiaries: USAA Life Insurance Company; USAA Investment Management Company; USAA Federal Savings Bank.