USAA and membership growth

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I received a great comment on an older post about USAA. As I answered it I realized that I’d written an entire new post in the subject, so I’ll just put up the answer here and link back to the other post. I’ll also add in feedback from USAA’s staff.

Here’s the entire comment before I break it down to answer individual points:

I’ve been a member for almost 40 years and I’m becoming increasingly dismayed by USAA’s push to expand without considering whether this provides any value to traditional members. In short, I am concerned with the drive to add ever more numbers to USAA’s membership with only tangential relations with the military. As an auto, home and umbrella insurance purchaser, I feel the pool is being diluted. I also think advertising should be limited to attract NCO and commissioned officers, not bought on network broadcasts. I think the value of USAA’s financial services are, in general, not any better than credit unions and stock/mutual fund companies. I’ve never gotten a home loan from USAA because their rates are not competitive, and my banking is with Navy and another Credit Union. The cost advantage of USAA insurance over its competitors, even factoring in the refund check, is narrowing–and USAA is beginning to be out competed in markets it should have a natural lock on. As for claims services, USAA is slipping there according to friends’ reports–I haven’t had the displeasure of having to file one.  

I loved the USAA of the 70s and 80s, was OK with the expansion in the 90s and now detest the trends this century. My loyalty is waning.

 

Thanks for your comment!

I’ve only been a member for 32 years, but these questions have been asked of USAA before and their staff have put numbers on the issue. I’ve filed my notes from their last two blogger conferences, and here’s what they’ve told us.

I’m becoming increasingly dismayed by USAA’s push to expand without considering whether this provides any value to traditional members. In short, I am concerned with the drive to add ever more numbers to USAA’s membership with only tangential relations with the military.

Over 20 years ago, USAA’s membership was not growing enough to support the fixed cost of running the insurance business. The military had greatly expanded in the 1980s to finish the Cold War. However starting in 1991 after the First Gulf War, the U.S. military drew down by over 25%. (In my own blunt assessment, not the words of USAA’s staff: the veterans of the larger WWII and Cold War military were dying of old age faster than young members of the smaller drawdown military were signing up.) By opening up the membership in 1996, USAA hoped to spread their fixed costs across a larger membership. That would hold down premiums while helping to defray the costs of new services.

After the initial surge of new members, other problems emerged. At USAA’s 2011 conference, one of the staff told me that the new membership qualifications (and exceptions and loopholes) made the decision more complicated than it needed to be. Even their own staff had trouble parsing the various categories and questions. Growth still wasn’t rising fast enough to support the expanded services that a larger association could support. To cut through the confusion, membership was clarified to “Former officers and enlisted who separated and were honorably discharged.” That later expanded even more to “All military and veterans who have honorably served and their families.” It’s simpler and it saves employee labor to process new membership applications. Even better, it expanded the eligible membership to about 60 million people.

Growth still didn’t happen as quickly as they projected, so USAA has spent most of the last decade on an extensive marketing campaign to spread the word about their expanded membership criteria. Growth has happened more quickly up through 2010. One USAA staff supervisor said that since membership has reached nine million, USAA is throttling back the expansion campaign to allow growth to proceed at a more measured pace.

I also think advertising should be limited to attract NCO and commissioned officers, not bought on network broadcasts.

In the late 1990s, most of the membership campaign was by direct mail and print advertising. Over the last few years, USAA has moved to TV, Internet ads, and social media. The overall cost of the latter marketing campaign has actually been lower because the ads were funded by cutting back on the printing & postage. (When’s the last time you received a USAA letter in the postal mail?) It’s not only cheaper than print but it’s reaching a wider audience. In 2011 the audience awareness of USAA was up 40%, awareness of services and other programs was up 20%, and awareness through their website and social media is up 80%. USAA’s recent partnerships with sporting events (the NFL, the Army-Navy game) and affiliations with veteran’s organizations are also paying off. These have helped spread the word to USAA-eligible veterans at minimal marketing cost to USAA.

As an auto, home and umbrella insurance purchaser, I feel the pool is being diluted.

Here’s the interesting result: in general, the newer members have been better than the older ones. The new members of our Boomer generation have about the same expenses as existing members, but USAA’s fixed costs are spread out over a larger population. Everybody wins.

The younger members have been an even better deal. Young drivers might pay higher premiums, but their accidents are actually costing less because they’re driving cheaper vehicles. They have smaller homes and less personal property to repair after a natural disaster. Surprisingly, they even have lower default rates on credit cards– especially when compared to the rest of the Millennial demographic. USAA’s revenue is up while their expenses and their claims are down.

One interesting aspect of the new younger members is the value they place on membership. The “Mine Was Earned” ads are promoting a sense of honor and legacy (and better member behavior) that’s dropping right down to USAA’s bottom line.

In short, USAA doesn’t need more members like you and me. They want more members like our kids. In my opinion, USAA might be impatiently waiting for our kids to inherit our assets so that our heirs can expand their lifestyles, buy more USAA products, and raise even more future USAA members.

I think the value of USAA’s financial services are, in general, not any better than credit unions and stock/mutual fund companies. I’ve never gotten a home loan from USAA because their rates are not competitive, and my banking is with Navy and another Credit Union.

I hear you. I only carry USAA’s auto insurance and a credit card. Our home, rental property, & liability insurance is with another (smaller, more financially fragile) military insurance company. Other brokerage firms hold our investments. USAA actually stopped insuring Hawaii homes for a number of years due to concentration risk. Other banks and credit unions offer more products (like business checking). Vanguard and Fidelity certainly have cheaper mutual funds and brokerage commissions.

USAA’s Scott Halliwell explained why. (At the 2011 conference, I talked one-on-one with him for over an hour.) He cheerfully acknowledges that USAA won’t compete on the price of their investing or mortgage products. More importantly, they don’t want to. They’re offering consolidated financial services with a company that understands the military and its families. They’re supporting people who move every few years, who call way outside of business hours from countries with unpronounceable names, whose spouses deployed before having the chance to complete exactly the right paperwork required by the letter of the law, whose pay might be messed up, and who just want a company that they can trust. USAA has learned that its members (especially those on active duty) want to do all of their business with USAA instead of with a patchwork of a half-dozen other financial service providers. They want the convenience of one-stop shopping with a company that they trust.

Scott says that USAA’s services are priced accordingly. Members pay rock-bottom rates for the vehicle & property insurance (and the customer service) that remains the core of USAA’s business. The rest of USAA’s products and services are literally open to anybody, not just USAA members! The banking & investment fixed business costs (and their rising regulatory costs) are spread out over an even larger population. This keeps their prices lower than the majority of the actively-managed investment industry– which, sadly, isn’t saying much about the rest of the industry. While it’s not as cheap as the giants like Fidelity or Vanguard or Schwab, it’s certainly a cost-effective way to consolidate their banking & investment services.

Over the last decade, my spouse and I have refinanced our home and our rental property nine times. We used Navy Federal Credit Union, Pentagon Federal Credit Union, USAA, Bank of America, and a local bank. PenFed was by far the cheapest interest rate and the lowest closing costs. However their service was so bad that I could not believe that they were licensed to do business in Hawaii. I easily spent twice as much time processing their paperwork (and dealing with their mistakes) than any of the others. (Bank of America was no prize-winner either.) USAA didn’t offer the lowest interest rates or the cheapest closing costs, but they were by far the best on customer service.

During the last year I compared USAA’s CD rates (and customer service) to NFCU and PenFed. My father has Alzheimer’s, and I’m the conservator for his finances. I have my own accounts with all three organizations, so I expected it to be easy to open accounts for my Dad and then put some of his assets into CDs.

The worst company was his own bank. He’d been with them for 25 years and yet they still wanted “know your customer” documentation. Each CD required a multi-page paper form, and I won’t go into the details of the conservator paperwork that they expected. Their rates were 0.5%-1% below the competition. It was a horrible, protracted, and unsympathetic experience.

PenFed was almost as bad, maybe because I had higher expectations. While their website is a fast and easy way to buy a CD, it was almost impossible to open an account for my Dad. They did not respect the probate court’s appointment letter and PenFed didn’t even understand basic conservator vocabulary. I made two attempts with two different supervisors and gave up in disgust.

By the time I got to USAA I had greatly lowered expectations. However they did the whole process over the phone (backed up by secure e-mail scans of my documentation) and they processed the funds transfer from Dad’s brokerage account in real time. Later they even fixed one of my mistakes to update the CDs as “transfer on death” to Dad’s beneficiaries. USAA’s CD rates are slightly lower than PenFed, but PenFed clearly didn’t want Dad’s money. USAA’s customer service was far above & beyond any other banking company, and their CD rates were only second to PenFed.

The cost advantage of USAA insurance over its competitors, even factoring in the refund check, is narrowing– and USAA is beginning to be out competed in markets it should have a natural lock on.

In 2008 when my teen daughter started her driver education classes, I verified that USAA was far ahead on pricing. She learned the same thing when she insured her own car last year. Maybe the cost advantage for older members is narrowing because we’re less desirable than younger members.

But your comment raises a good point about where to compete. I had an interesting discussion with their banking VP about business checking. In general, the financial industry’s regulatory costs have nearly tripled over the last decade. The rest of the banking industry is making up for the higher costs with a staggering array of customer fees and penalties. In addition, the industry has chosen to offer some products as “loss leaders” in the hopes of locking customers in to other products with much higher profit margins. USAA has avoided as much of that as possible by simply not attempting to compete unless there’s a membership demand. They’d rather keep low pricing on their core member services than attempt to enter other banking areas that may or may not support their expenses.

It’s been nearly two years since I became aware of the membership demand for USAA business checking, and the company has finally figured out a way to offer it to the members who want it without asking the rest of the members to subsidize it. They’ve made great strides in other member services, too, such as Auto Circle and Home Circle. I suspect that all of their member services (not just the ones which you and I happen to use) are more robust than the rest of the industry.

As for claims services, USAA is slipping there according to friends’ reports–I haven’t had the displeasure of having to file one.

USAA’s mistakes have annoyed me plenty of times over the last three decades. A friend recently required medical treatment after a vehicle accident, and USAA certainly spent a lot of member money on HIPAA paperwork & postage while tracking her progress. I’m also seeing frequent complaints about the estimates of claim damages and the choice of repair services.

I wonder if my perception is a reflection of our own human tendencies to pay more attention to problems than to “business as usual”. There are certainly more members, so there are more opportunities to complain. Bad news also spreads much faster these days, which could raise the visibility on formerly hidden problems.

I won’t attempt to defend USAA’s record on claims services– they can always do better. However they’re doing pretty well with J.D. Power’s independent ratings. While they could improve, I suspect that their customer satisfaction is ahead of the pack of the other insurance companies.

Since we haven’t had to file a claim in decades, either, we may not see the customer service benefits of being able to rapidly process claims or offer new technology for more tailored service. I know that USAA’s mobile claims processing paid off for property owners during last year’s natural disasters. Today USAA can literally send out a payment for a vehicle insurance claim before the owner gets back home from the scene of the accident.

However when I look at the good things that USAA has done for me and my family over the years, they’re ahead on points. I’m certainly not willing to spend more money with other insurance companies in the hope of improved claims services. I’d rather save money on the cost of business as usual.

I loved the USAA of the 70s and 80s, was OK with the expansion in the 90s and now detest the trends this century. My loyalty is waning.

I think that USAA values our customer loyalty as much as any large corporation is capable of that behavior. Again, they have one of the Fortune 500’s highest rankings on employee satisfaction and very high customer-service ratings. At least 25% of their newer employees are military veterans, and USAA actually puts their new staff through a mini “boot camp” to help them understand the challenges that their active-duty members have to contend with every day. When it comes to understanding my issues, I think USAA already shares a common culture with its members.

However instead of despairing over USAA’s service, I’d suggest that you should investigate other companies. With apologies to the old Lee Iacocca commercial, “If you can find a better insurance product: buy it.

 

FTC disclosure: USAA has paid for a portion of my transportation, food, and lodging costs at two blogger conferences. You might wonder whether that would affect the objectivity of a financially independent retired Navy nuclear engineer. Instead it’s subjected their staff to hours of brutal interrogation, raised cynical questions about their math skills, and inspired outright skepticism of their high employee satisfaction. As a geezer long-time member I’ve been especially inquisitive about their retirement calculators and their financial products. At least one executive was ambushed with hostile questions about providing business checking to USAA members, and I’ve stalked several more execs through followup phone interviews. We bloggers also drank all of their coffee, ate all of their breakfast burritos, abused their WiFi bandwidth, and made fun of their underwear vending machine. I’ve attempted to balance the scales by distributing omiyage of Kona coffee and chocolate-covered macadamia nuts, which may only call into question the objectivity of their employees. But I enjoyed the conferences so much that I’m hoping to repeat the experience!

 

 

 

 

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Related articles:
USAA blogger conference: initial report
USAA blogger conference topics
More news from the USAA Blogger Event
Answers to USAA’s questions
USAA: Military Transitions, Home Circle, Auto Circle
USAA’s retirement planner and financial goal-planning tools
Personal finance, mobile banking, and mobile wallets

 

 

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WHAT I DO: I help you reach financial independence. For free.

I retired in 2002 after 20 years in the Navy’s submarine force. I wrote “The Military Guide to Financial Independence and Retirement” to share the stories of over 50 other financially independent servicemembers, veterans, and families. All of my writing revenue is donated to military-friendly charities.

15 Comments
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  6. Reply
    Mike March 30, 2013 at 2:36 AM

    When I was commissioned, I started banking with NationsBank Military Banking (eventually I think it became Bank of America), and it was dreadful. I switched to USAA I think about 15 years ago. I’ve been happy with them, though now that I pay more attention to things, I do see how uncompetitive that they’ve become in some areas. For instance, now that I have a healthy savings built up, they have a dreadfully low interest rate with their savings accounts, in comparison to other banks. I’m loyal, but my eye is starting to wander…

    • Reply
      Doug Nordman March 31, 2013 at 10:40 AM

      I think USAA provides member services that have to pay for their own expenses. I know they’ve been cutting back on rewards on debit cards and credit cards. It’s taken three years for the bank staff to figure out a cost-effective way to offer business checking, and I’m sure that will also have to pay for itself.

  7. Reply
    Rob March 27, 2013 at 11:34 AM

    “USAA has learned that its members (especially those on active duty) want to do all of their business with USAA instead of with a patchwork of a half-dozen other financial service providers. They want the convenience of one-stop shopping with a company that they trust”

    That quote describes me. I have happily banked with USAA for 17 years, several deployments, and too many PCS moves.
    On 2 occasions USAA called ME when my credit card number was fraudulently used in another state.
    I used a USAA mortgage to buy a house in Florida before we PCSd from England; 3 moves later I sold the house while living in Virginia. I bought a new truck in Va., registered in Florida, with a USAA loan. I have mailed in paper checks, and now I scan them. My wife and I still shake our heads when we see a brick and mortar bank, since we haven’t seen a need for one in nearly 2 decades (except for safe deposit boxes, but that’s another story).
    For investments, I have a few Vanguard ETFs in my USAA brokerage; I don’t contribute to them regularly so the trading cost only applies to when I rebalance.
    Those are all reasons why this active duty family is happy to have all of our finances centralized at USAA. I’ve looked at savings accounts at ING and others, but I just like consistently having everything in one place.

    • Reply
      Doug Nordman March 28, 2013 at 7:09 AM

      Thanks, Rob!

      I’ve stopped using another company’s rewards credit card and gone back to my USAA rewards card just because the other company was driving me nuts with their anti-fraud procedures. Apparently I’m willing to accept fewer rewards for a lot less hassle.

  8. Reply
    Deserat March 27, 2013 at 10:03 AM

    I echo some of the OPs concerns. I had a small accident while on status as a Reservist and 4 months later I received a phone call from an insruance agent of the driver who rear-ended me and she said USAA had re-directed her back to me to get the details of the accident – USAA had closed their files – huh? Part of why I use their insurance is to not have to send information to many different people when I’m in some type of accident (which by the way was the first one I’d had in over 15 years and it was definitely not my fault).

    As for banking, well, PenFed has caused me much angst when traveling internationally (and I find it crazy that they are so restrictive on the use of their credit cards overseas when they are servicing a military population which *goes overseas* for a living!), that I dropped them like a hot potato and went back to USAA even though the rewards card isn’t as lucrative – doesn’t matter how lucrative it is if you can’t get access to use of the card or your money!!! As for small local credit unions, well, they are more price sensitive, however, they are not very sophisticated. I’ve had to use better credit cards for my business transactions due to the international nature of my business dealings. Also, USAA at least has a way to have money wired internationally to your account, which is almost impossible for some of these smaller credit unions – I’ve spent hours on the phone learning all about the different intricacies of ACH, wiring, SWIFT codes, ABA routing numbers and the like…..craziness.

    Nevertheless, I find that from a customer service standpoint USAA hasn’t deteriorated as much as many of the other organizations I must do business with, so I stay with them…..for now. Frankly, customer service has deteriorated in general with all companies nowadays. Between the robo voicemail trees and just basic rudeness you deal with (which could start a whole other post on what virtualization does to social skills), anyone who will listen and at least acknowledge you is a plus. My expectations are low in general.

    • Reply
      Doug Nordman March 28, 2013 at 7:05 AM

      Thanks, Deserat!

      More than any other military-friendly company, I get a lot of comments when USAA makes any sort of change– good or not-so-good. Members either love or hate the experience, but there’s very little apathy.

  9. Reply
    S L March 27, 2013 at 3:17 AM

    I was a legacy member since I was a kid: My father was an army officer. I qualified on my own after serving the US Navy Reserves. So, I have also been a member… well, almost literally my whole life. I had their insurance both car and rental and was using their bank as a secondary account (not being near brick and morter for paper paychecks made it harder) I am also now a USAA employee.

    I was looking for work, unemployed and using the new Deposit@mobile they had just introduced and transferring to USAA as a primary account because of it and wondered if there were any IT positions available. I opened the actually easy-to-find (having been unemployed for months, I had found that getting to that careers link on company websites is almost gordian) link at the top of the page, there it was – a position reading like it was tailored for me. I applied, they relocated me and after a year and a half, it still feels like a job honeymoon. I feel like I have actually found a place I can and might actually retire from. I have expanded my lines of business all over the place with them, used their home circle to find a rental, and am using their auto circle to look for a used car for for my son, who will be a third generation USAA member.

    I am also a 40-year member, actively only 20-some-odd, and a proud veteran. USAA will never lose my business, even if my career takes a different path. Period.

    • Reply
      Doug Nordman March 28, 2013 at 7:02 AM

      Great story, S L, thanks. My cousin at USAA has the same stories, and I’ve heard them from a dozen other veterans who are working there. You must be getting treated right!

  10. Reply
    Doug Nordman March 26, 2013 at 5:32 AM

    Thanks, Spencer!

    I’ve done my share of rate chasing, and I think I’m batting about .500. As I simplify my finances, I’m finding out that customer service is a lot more important to me than having to ride herd on a less-competent company. The challenge is avoiding the need for customer service in the first plsce.

    Maybe us DIY finance people are not USAA’s key customers. I think they cater to “trust” & “one-stop shopping”, and members are willing to pay a little more for the peace of mind.

  11. Reply
    Spencer March 25, 2013 at 10:43 AM

    A lot of good food for thought. I’ve been a USAA member for 6 years. Some things I like:

    *Never paid a fee
    *Excellent customer service every time
    *First company to roll out deposit by mobile
    *CD rates used to be the best in the industry
    *Unlimited savings and checking accounts
    *Lowest car insurance rates I can find
    *ATM fees refunded

    Some things I don’t like:

    *Mortgage rates not competitive
    *Investing products lackluster
    *Credit card products aren’t competitive with other companies

    If interest rates start going up, will I “rate chase” to other online banks to get a better interest rate? Probably. Will I still maintain my banking/insurance relationship with USAA? Only if they stay competitive. Companies are often too caught up in “customer loyalty.” I’ll stay loyal to whomever provides the best rates for their products.

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