Editor’s note: This is the second of a two-part series looking at insurance and financial services company USAA on the occasion of its 100th anniversary. Read part one here.
A century of transformation separates USAA’s humble beginnings from its present, a financial services giant that’s now one of the nation’s largest corporations. But its expansive growth in the last few years alone has come with its own host of changes whose full effects won’t be realized for years to come.
USAA has seen a shift toward top-level leaders without military backgrounds. Its remote-work policies have already upended its decades-long office expansions. Compliance concerns could reshape the banking side of the business. And a spate of business unit sales in recent years could spell a return to USAA’s roots.
USAA’s CEO is emblematic of the changes at the company. Wayne Peacock, who took the helm just six weeks before the COVID-19 pandemic hit the country, is the first non-veteran to lead USAA. In the company’s 2021 annual report, released Thursday, he said the continuing pandemic and subsequent natural disasters contributed to a year where “our resilience was tested in more ways than we could have imagined.”
Peacock described the last few years as a “period of investment in our people, processes and systems,” referring in part to its advances in automation technology and digitization, its recent staffing surges and related boosts to employee benefits and wages.
“But when I think about USAA’s legacy, what’s most remarkable is what hasn’t changed,” Peacock said via email. He recently opened a time capsule buried in 1976 by then-USAA CEO Gen. Robert McDermott and his staff. “As I sifted through the artifacts, items such as member brochures and strategy and planning documents, it became abundantly clear that USAA’s enduring commitments have stood the test of time — take great care of employees, ask them to take great care of members, and make prudent financial decisions.”
Like Peacock, McDermott oversaw a shuffling in the company’s C-suite, where he insisted on bringing in outsiders. Under him the company invested heavily in technology, pioneered one of the nation’s first four-day workweeks and reworked its core business offerings, including launching its bank.
After McDermott, who is widely credited with bringing the company into the modern age, Peacock is USAA’s “second major league leader,” said Bexar County Judge Nelson Wolff. “I put them as two premier leaders that I have known in the last 50 years.”
Peacock, a 32-year employee who had been president of USAA’s Property and Casualty Insurance Group, has wasted no time in putting his stamp on the company, beginning with the executive council.
Last veteran leaves the executive council
A quiet shift in power has taken place in recent years at USAA’s executive council, the small group of executives that plans and builds strategy.
In previous decades, its seats were largely filled by senior leaders who had risen through company ranks, many of whom had extensive military backgrounds.
Peacock, who has been on the council since 2006, has accelerated the trend toward hiring top-level executives from outside the company, regardless of military background.
At least eight of the 10 executive council members are new to the group since Peacock became CEO in February 2020.
Out of the eight new members appointed, just two have been at the company for more than eight years. None has a background in the military.
One of the last members on the council to have military experience was Vice Adm. James Syring, who was named president of the Property and Casualty Insurance Group in 2020 but has since been taken off the executive council list.
However, 13 out of 18 USAA board members have military experience, according to a company spokesman, including its chairman, Vice Adm. James M. Zortman.
Peacock said in a written statement that USAA’s mission is to help military families build financial security. “We’re hiring the most qualified experts to achieve this,” Peacock said. “As a large financial institution we need the right blend of military expertise and business expertise.”
He also said one in five new employees hired at USAA is a veteran, a military spouse or partner.
A return to core offerings
In recent years USAA has made moves to simplify its operating structure and focus again on its core businesses.
In 2019, USAA announced it was selling a controlling stake in its real estate company. The move came months after USAA sold the company’s investment management business for $1.8 billion and its mutual fund and exchange-traded fund businesses and a college savings plan in a deal worth $850 million.
The moves continued in 2020 as USAA discontinued its car-buying service, ending a 13-year relationship with automobile e-commerce company TrueCar Inc.
The strategy appears to be bearing out. Last year, USAA launched several new insurance offerings, including usage-based auto insurance as well as small-business insurance. It also launched new digital tools, like one that uses artificial intelligence to tally the cost of accidents within seconds based on drivers’ smartphone photos.
Peacock said the divestments “allowed us to focus on our core business of banking and insurance while providing our members access to companies that have enhanced investment products and services.” He added, “USAA will continue to do what we’ve done for 100 years, and that’s adapt and change to meet the financial needs of military families.“
In its 2021 annual report, USAA said membership increased slightly, still serving more than 13 million members, and that revenue climbed 3%, including in insurance premiums and real estate operations, though it fell for the sale of loans. Net income was $3.3 billion, down from $3.9 billion in 2020. Its net worth, which reached a record high in 2020 of $40.4 billion, fell slightly to $40.1 billion.
A shrinking office footprint
While the pandemic may be waning, its effects on USAA’s workplace have endured. The company employs 19,000 in San Antonio, mostly at its massive headquarters on Interstate 10, and before the pandemic had plans to move 2,000 of its workforce downtown.
Like many office-based companies, USAA made a sudden pivot to remote work in the early days of the pandemic. Over the course of days, USAA arranged to have its tens of thousands of employees work from home, sometimes delivering technology and even chairs to these new workplaces.
More than two years later, many employees continue to work from home some days as part of a hybrid arrangement.
Peacock said the company is “continuing to evolve” in its approach to flexibility. He personally works four to five days in his San Antonio office or visits other USAA locations, and he praised the power of in-person office work to drive natural interactions.
Still, “there is something powerful about being together while having the flexibility to work from home,” he said.
There are some indications USAA sees the hybrid policies as long-lasting.
This year USAA ended agreements with the City of San Antonio and Bexar County to move jobs downtown in exchange for tax abatements. Last year it moved to vacate and sublease some of its downtown office space and sought to sublease the Vista Corporate Center and WestRidge Office buildings.
“Like many companies, the pandemic and a shift to hybrid and remote working have changed our real estate needs,” said a company spokesman at the time.
Compliance concerns
It’s been just three months since banking regulators pounded USAA Federal Savings Bank with $140 million in fines for what they called — and what USAA was forced to admit as — “willful violations” of anti-money-laundering laws. It follows other enforcement actions in 2019 and 2020.
The company had failed to ensure its compliance program kept pace with the bank’s rapid growth over the last few years, said Financial Crimes Enforcement Network acting director Himamauli Das in a statement at the time.
Now, USAA is seeking to make up for lost time. The effort, and scrutiny of it, will likely shape the company for years to come at a time when banking law is becoming increasingly complex.
The company has, among other measures, hired thousands of new staffers in relevant departments as well as new compliance and risk officers, said a company spokesman. It has also made “significant investments” to modernize its technology and increase automation to help employees investigate and report potentially suspicious financial activity in a timely manner.
But bulking up compliance infrastructure is no easy feat. John Byrne, a veteran compliance expert who advises companies on financial crime prevention, said that in addition to hiring and training staff and adopting new technologies, a wholesale shift in culture is sometimes needed.
And even then banks can expect to draw close attention from regulators. “Human nature being what it is,” Byrne said, “their expectations are going to be higher for you than another institution.”
Among the requirements imposed by the bank’s primary regulator, the U.S. Treasury’s Office of the Comptroller of the Currency, is to create an independent compliance committee.
The bank has gone through at least four chief compliance officers since 2015, reported Compliance Week, a trade publication.
Compliance has also become more complicated in the years since USAA first chartered the bank in 1983. Laws originally intended to put banks on guard against drug trafficking have since expanded to cover all manner of financial crimes, such as pandemic relief fraud and ransomware-related transactions.
Following the 2008 financial crisis, the Dodd-Frank Act restructured banking regulators and put all banks — including USAA’s — under stricter federal control.
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