USAA’s underwear secrets

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This week I’m blogging about last week’s USAA Blogger Event. I’ll talk about the conference & tours and I’ll pass on their answers to your questions. I’ll also include the blogs of the other attendees. If you want to dig through the old Twitter feed, we used hashtag #USAABE.

For those of you whose curiosity can’t stand the suspense, the answer is “Yes”: USAA still has their underwear vending machine. More on that at the end of this post.

But first, the disclaimer inspired by the Federal Trade Commission: “My trip to San Antonio to participate in the Blogger Event was fully provided to me by USAA.” USAA also paid for the meals & snacks and lot of coffee, although I took care of my own airline baggage fees. Oh, and I got a cool USAA t-shirt too. So for the price of a free round-trip plane ticket to summertime south Texas, plus lodging, meals, and wardrobe, it’s possible that I may have lost my objectivity and turned into a craven USAA fanboy.

Sure. Ironically, the last employer to take care of my needs to such a comprehensive degree was: the U.S. military. You can see what kind of fanboy that turned me into.

My military service afforded many opportunities to sharpen my skills at cynicism and skepticism. When I encounter someone proclaiming how fantastically generously their employer is treating them, I’m a tad concerned about their credibility. (Both the employer and the employee.) When I hear an entire roomful of highly-skilled communications professionals preaching their praises of a wonderful company and its stellar service policies, I hold on to my wallet and avoid whatever Kool-Aid they’ve been drinking. Then I dig for the truth, because these claims just have to be ludicrously deceptive.

But while I’m being cynical, I should also point out that you can’t swing a dead cat in the corridors of USAA’s HQ building without hitting at least one retired O-5. We had presentations from three retired flag officers and chatted with at least two handfuls of O-6s. (Maybe next conference we’ll get a look behind that office door labeled “Military Talent Management”…) USAA explicitly recruits veterans for at least 25% of their staff. When they hire a former junior military officer, they spend two years training them in different departments before giving them a choice of career tracks.

Retired senior enlisted are also making the company run, including a command sergeant major who trains their new employees. Just as these leaders did during their decades of military duty, they make sure the recruits preserve USAA’s service culture while appreciating what their members have to endure. I can’t divulge proprietary corporate training techniques, but it involves two experiences almost as painful as live ammunition: body armor & MREs.

The reality is that USAA’s employees are making the most of a wonderful opportunity: they’re serving their customers.

Let’s follow the money at this corporate utopia. USAA sells insurance and financial services: lots of it. With over eight million members, they collect hundreds of millions of dollars in annual premiums. Even better, USAA is privately held. They’re not required to publicly divulge their balance sheet, their cashflow, or even their annual revenues. AIG is drooling with envy at USAA’s “opportunities”.

USAA was started by military officers in 1922, although in 1996 its membership was belatedly opened to enlisted. Its CEO (a retired general) and its board of directors (stuffed with many more retired senior officers) oversee more than 22,000 employees and nearly two dozen corporate offices– including a headquarters building which literally rivals the Pentagon for its size and complexity. These execs have plenty of chances to enrich themselves at the expense of the shareholders.

Anyone can look up the career history of these guys (and the military’s pay tables) to determine that they’re already pulling down around six figures of inflation-adjusted pension and cheap healthcare. Anyone who’s ever watched a flag officer in action knows that they’re not about the money– they’re about the challenges of forming large teams to solve complex problems. Despite their skewed focus, every one of these people could be pulling down millions in “compensation” from defense contractors or in politics, so why waste their time filching penny-ante premiums?

The catch is that USAA’s shareholders are the customers. If the company’s corporate leadership tried to take advantage of their clients, there wouldn’t be mutiny in the ranks: there’d be desertion. The shareholders would immediately depart USAA for Armed Forces Insurance any other insurer who could offer them a sympathetic ear.

With such fickle shareholders, USAA actually has a challenge that AIG wouldn’t touch with a ten-foot pole: USAA has to convince their skeptical clientele that they’re taking care of them. They have to impress them that their shareholder dollars spent in their best interests. How in the world could they do that?

The answer is surprisingly simple: USAA spends their cashflow on customer service. If they have too much cash then they actually issue refunds.

Any MBA student would tell you that this can’t possibly work. Why, if USAA doesn’t maximize their margins and boost their bottom line then they’ll never make enough money to dominate the insurance industry.

Again the catch is that USAA doesn’t have to dominate. More importantly, they can’t. They don’t have to put the other insurers out of business because they can’t grow big enough to do that. They can’t attract millions of high-paying customers because they have a limited pool of eligible members, and those members draw pretty low salaries. USAA can’t attract hundreds of billions of dollars of assets and then undercut the competition on expenses because service would suffer and the customers would leave. The MBAs are right: USAA doesn’t scale. The only way USAA can compete is to keep those customers. Luckily, as a private corporation, there’s no pressure to boost quarterly earnings by a penny per share or to exceed revenue targets. Just like the military, USAA’s survival depends on retention– or the members will vote with their feet.

USAA has to find good customers who are willing to pay minimal premiums for maximum service. When the service is good, USAA doesn’t have to spend extra money on “customer recruitment” or “retention” or “upselling”. They just have to keep carving away at their expenses of processing claims and handling money. As long as they’re improving services while making life safer & easier for their customers, they’ll keep them. One way to do that is to make USAA a simple place to do all of a customer’s insurance and financial business. Another way to do that is to develop customer trust.

USAA’s executive guidance is pretty straightforward:

  1. Do the right thing for the customer.
  2. Don’t screw this up.

You would think that USAA’s employees would be disgusted by the lack of opportunity to enrich themselves. (They laughed when I mentioned employee stock options.) These insurance professionals could surely make a pile of filthy lucre anywhere else in the industry. Yet USAA’s annual employee turnover is in single-digit percentages. The employees are nearly as loyal as the customers.

It turns out that I have a distant cousin working at USAA. (He’s been there for over a decade, which means that among some of his co-workers he’s still considered to be a newbie.) We spent a few hours together enjoying good family gossip over a couple of meals. I tried my darnedest to get him to dish the dirt on his employer, but he apologetically admitted that there isn’t any. He’s happy to have the job, it’s fascinating work, he’s treated well, and frankly he enjoys it. He’s even recruited his relatives to become USAA customers.

The reason for USAA’s employee happiness appears to be pretty simple: the employees can treat the customers they way they’d want to be treated. Their work is still complex, but they have a high degree of customer-service autonomy and it’s fulfilling. (Malcolm Gladwell’s “Outliers” research shows that this is exactly what most employees are seeking.) More importantly, if these things are lacking then high salaries and obscene stock options won’t make up for the deficiencies.

It was a relief to discover the secret to USAA’s employee motivation. It turns out that I didn’t have to be so skeptical & cynical after all.

Back to the underwear vending machine: USAA has a huge employee fitness center– just the equipment floor is the size of a football field. Because USAA runs a large 24/7 call center, the fitness center is churning the same hours. (Why, if they hooked those treadmills to generators and powered the building… but I digress.) USAA actually charges their employees to use the fitness center, but when the employees log a certain number of hours on the equipment (of course swiping their employee badges on the card readers) then they earn credits toward lower fitness-center fees. (Imagine if 24-Hour Fitness or Gold’s Gym paid you for showing up more often.) But wait, USAA is even more sneakily motivating than that: they provide free towels, soaps/shampoo, and workout clothes. In other words, you can’t use the classic excuses “Oh, sorry guys, I can’t work out today because I forgot my sweats. And my towel. And my shampoo.” When it’s free, you have to use it. (Which also reduces USAA’s employee healthcare costs.) However, even USAA draws the line at using customer premiums to pay for free underwear. So if USAA employees forget their socks & jocks then they have to buy their own.

Next post: I’ll answer the rest of your questions.

If you’re in the San Antonio area today, I’ll be signing copies of the book at the Randolph BX from 2-4 PM. Again, all royalties go to military charities. Free Hawaii chocolate-covered macadamia nuts for the first 25 customers!
Thu 15 Sep update: Thanks to everyone who showed up on Mon 12 Sep, but the book signing is over. You already realized that, right?

Related articles:
Questions for USAA’s blogger conference
USAA Blogger Conference

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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.

  1. The following is my personal first amendment Freedom of Speech opinion and does not reflect the views of any other person or company, nor does it reflect the views of USAA. USAA talks about doing the right thing because it’s the right thing to do. However; you will find out after working there for a short time that doing the right thing will always get you in hot water. Most managers there are looking out for themselves and their cushy jobs and don’t really care about their employees. You’re supposed to memorize the functions of your job and the employee handbook front to back because if you make even 1 mistake that’s a violation of your job functions and expectations, you are on your way to termination. If you are completely effective and capable of performing your job functions, but you don’t comply with “the USAA way” 100% of the time, expect to be canned. Your education, professional experience, designations and licensing doesn’t matter at USAA because everyone who isn’t a CSM is considered a “call-center employee” aka Phone Operator. Many 20+ year tenured Claim Examiners are treated this way! If the phone rings, you MUST answer it. The salary, benefits, perks, etc are really nice; but it isn’t worth knowing that you’ll never work a scheduled 40 hour week; you’re being monitored and recorded at all times; and god forbid you let a phone call intentionally go to voicemail. Apply or don’t apply; that’s your decision; not mine. I personally regret accepting a position at USAA. Had I known I would be treated as an entry-level high school phone jockey, I would never have wasted MY talent here.

  2. Hey Doug!
    It was a pleasure meeting you at the conference! Hey, I work behind the Military Talent Management door! Nothing much exciting to see there !
    ….We’re the group responsible for hiring veterans and managing programs like the Junior Military Officer Career Development Program (JMO CDP)…making sure we always have “Military Talent” within the organization.
    Great post!

    Marcus Scarborough

    • Thanks, Marcus, I thoroughly enjoyed hearing about your transition from active duty to USAA. It’s great to see the good guys win once in a while.

      I will be referring servicemembers to you. And let me know when you guys are ready to open the Honolulu office…

  3. Ok, let me get this right… your investor due diligence for USAA shows this is one of the best managed, most profitable companies in America/the whole world, but the only way to use this information is to move to San Antonio and work for them, if they will have you. (How far to the nearest surf break? You are coming home?)

    • Y’know, I’m not looking for a job, but this is the closest I’ve come to “employment interest” in at least nine years. However you’re right– the San Antonio surf sucks and there doesn’t seem to be any plan for a Honolulu office. Yet.

      So I came home today. My travel plans were pretty ambitious, and I might have overdone it a little…

    Comment? Question? What's on your mind?