USAA, an insurance company known for its devoted customer service, is a quiet giant in the industry. Based in San Antonio, USAA has a unique business model: It serves members of the military and their spouses and children, insuring their lives, homes, and autos. From its humble origins in 1922, the company has grown into one of the largest in the United States — number 94 on the Fortune 500 list, with more than 13 million members and US$207 billion in assets. Wayne Peacock, a 32-year veteran of the company, rose through the ranks to run its property and casualty insurance group. Peacock, the first CEO of USAA not to have served in the military, assumed the top job in February 2020, just weeks before COVID-19 began to wreak havoc on the U.S. economy. In a November 2020 conversation with strategy+business editor-in-chief Daniel Gross, Peacock discussed how USAA, approaching its 100th birthday, hews to its mission while deploying artificial intelligence (AI) and new technology in order to reinvent the claims process.
S+B You had already been at USAA for a long time when you assumed the post of CEO. What was your mandate?
PEACOCK: I have spent about half my life here at USAA, and I’ve had a number of leadership roles. Being selected to be in this chair was a tremendous honor, but it brings a huge sense of responsibility. The night before my appointment was announced, I walked through the big central hall at headquarters, where there are paintings of all the founders. To be in the company of the group of leaders that have sat at the helm of this organization since 1922 is very humbling. We have to carry on the legacy of this 100-year-old company and ensure that it is prepared to serve military families extremely well in its second century. My mandate was to be the insider who is the disruptor. At this time in our history, our company needs change, but it also needs someone who appreciates and understands our culture and our mission.
S+B: What are the main changes that are needed?
PEACOCK: We are in a transition period, moving from analog to digital, as is most of the rest of the world. Over the last 10 years, we grew at a very fast pace. And we didn’t always build the necessary human capital and systems and processes to operate at scale. So I would say future-proofing via simplification and digitization was the general mandate. We needed to execute three divestitures of noncore business that were in process. We clearly have an opportunity to improve our risk management and compliance capabilities as we manage a bank and insurance company. We have a big opportunity to use data and advanced analytics to meet member needs, price products with greater precision, and drive operational efficiency. And then [we need to continue] to manage an uber-strong balance sheet, which as a membership organization is vitally important to us. But the big opportunity is the more enduring one that I set forth to the team. And that is creating an environment in which each of our employees can be at their best every day. Granted, this was February 1, before it was clear that the pandemic was on our doorstep.
S+B: Every company in every industry is in the midst of a digital transformation. Insurers use apps for claims and chatbots to initiate customer service calls. What are some of the more sophisticated opportunities inherent in digitization and AI for insurers?
PEACOCK: In the property and casualty claims arena, historically, bad things happen, and that’s when you pick up the phone and you call USAA. And we would create a paper file, and then a few days later a person in the field would show up. Today, it is digitized all the way through. Now we’re applying the capability to bring photos and images into the equation, and then use those images to calculate the cost of damage rather than having a human do it in person. COVID really forced us to pick up the pace and say, “Instead of piloting that capability, we’re going to roll it out broader.” We’re building and testing the ability for the members to take a picture of the damage to their car and upload those photos to our system. And then have AI and learning models translate those pictures into an estimate of damages and access a catalog of prices for those individual parts and labor. In a matter of seconds, we can deliver a bankable estimate. Then, if people are going to do the repairs themselves, we can immediately transfer funds into their bank account. We can now do in minutes what would have taken days before.
Over the last few years, we have been really testing drones. In the forest fires this summer, we adjusted about 60 to 70 percent of our claims using visual imagery, and in many cases, put money into the hands of policyholders before they could get behind the fire line and actually see their house that burned down. That gave them a chance to be first in line when there was a shortage of contractors. As COVID came in, we took those capabilities and began to do virtual estimates, so that we didn’t have to put our members or our employees in harm’s way.
S+B: When COVID-19 hit, USAA shifted, like many other companies, very quickly to remote work. Was that at all part of the culture before COVID?
PEACOCK: We’ve always had field representatives, and about 20 percent of our employees worked remotely before COVID. Our pandemic plan was on the shelf from when we were dealing with the bird flu [H1N1]. It had a set of triggers — if there’s so much virus outbreak, and this many people get sick, then we would start to social distance in the building. That plan helped us get started. But it presumed that a certain number of people would get sick before we would ever start social distancing in the building. With COVID, we sent people home before anyone got sick. I brought in our technology leader and said, “I think that we need to practice sending people home. I want to send 10,000 people home, so give me a plan for doing that.” This was on Tuesday. He came back to me on Wednesday, and said, “All right, in three weeks, we’ll be prepared to send 10,000 people home.” And I said that we should send 10,000 people home on Monday. And he gulped a little bit, but we did it, and it actually worked pretty well. And on the following Wednesday and Thursday, it became clear that this was going to move much more quickly than anticipated, and on Friday we made the decision to send everyone home. Nine calendar days later, everyone was at home — 30,000 people. Necessity is the mother of invention, right? All the normal barriers and processes that we would have to evaluate and think about and test and learn really got expedited. And we have used that experience to drive a lot of change in the organization over the last nine months.
S+B: How else has COVID-19 pushed you to act more quickly than usual?
PEACOCK: We delivered more than $1 billion in dividends to our policyholders this year, because they weren’t driving as much. The process to do an extensive risk assessment for that would be months in a normal environment. And I think it was between a Friday and a Tuesday when we came to the conclusion that we needed to do it, and we announced it on Wednesday. The lesson is that maybe not everything you’ve been doing in the time frame you were taking to get it done is absolutely necessary to get to the right answer. I call it a kind of Marine Corps math. If you can get there with 70 percent of the information, then make the decision and get on with it. And if you didn’t get it exactly right, you can adapt and change tomorrow or the next day.
S+B: Companies spend a lot of time talking about their mission or employing agencies and consulting firms to come up with one. What does mission mean at USAA, and how does it filter through the leadership and the organizational culture?
PEACOCK: We’ve been doing the same thing for 98 years, right? So it’s been pretty clear to us. Back in 1922, Army officers in San Antonio, Texas, were perceived to be a bad insurance risk. And five of them got together and said, “Hey, let’s start our own insurance company. How hard can it be, right?” They got 20 of their officer friends together and pooled their money. From that humble beginning, this mission and purpose was born: Together we can take care of each other and do it better than anyone else. Today, we are still membership focused, so there’s this connectivity between employees serving a mission and the people who are served by the mission. The core values of our company are really extracted from the core values of the military. More than 20 percent of our employees had a uniform on at some point in time or are the spouse of someone who did. So USAA is a place where you come to do great work and be a great teammate. But we also know the reason we’re here is to work for something bigger than the products and services that we sell, and for a group of people who are vitally important to the core fabric of who we are as a country. But most importantly, there’s a common denominator: We’re here to take care of those who put that uniform on. Because at the end of the day, they give a lot, and they don’t get a lot back.
I call it a kind of Marine Corps math. If you can get there with 70 percent of the information, then make the decision and get on with it.”
It drives our strategy. It drives new product decisions. It drives our conservative nature to manage a really strong balance sheet. When the phone rings here or there’s a click or a tap into one of our digital channels, whether it’s a basic transaction or someone whose house burned down and he or she doesn’t know what to do next, or whose loved one passed away — we try to get it right every day on the everyday things. But we try to do it really, really well when it matters most. When you talk to our members, you’ll find people who have been with USAA for 50 years. And when they were 25 and they didn’t know up from down, something happened and someone on the phone at USAA took great care of them. They’ll tell you that story decades later.
S+B: As a mutual company, you don’t have activist shareholders or report quarterly earnings to Wall Street. What does that free you to do?
PEACOCK: We have an opportunity to take a longer view on doing the right thing for our membership and building the right capabilities to serve them. We have an intense focus on getting it right every day and on delivering operational efficiency, so that we can both compete in a highly commoditized set of industries and, at the same time, build the financial strength to be able to continue to grow and prosper and serve more members in the future. We don’t raise capital in any way from an equity standpoint. We only raise capital through retained earnings. And we maintain a very small amount of debt, simply so that the skids are greased and we’re prepared in times of crisis.
S+B: You’ve alluded to dispositions — real estate and other lines of business. The trend in a lot of financial services is to try to be a financial supermarket and capture higher wallet share. Why is USAA going in the other direction?
PEACOCK: We’re trying to rationalize the group of products that we serve to members. There is consolidation, and scale is being built in every one of the industries in which we participate. It became very clear to us that at our size and scale, we would not, over the long haul, be able to invest properly. We sold our real estate business, really, because managing institutional real estate for other investors is not core to our mission of serving members. We sold our mutual fund business to Victory Capital, and we sold our wealth management and brokerage business to Schwab. In each case, we’ve built relationships and will continue to refer our members to each of those firms. Our real job is to take care of our members really well. And if we’re not the best company to take care of them, then let’s get them in the hands of someone who can.
S+B: Understanding risk, valuing risk, appreciating what risk is, are all part of the conversation in a way that they weren’t a year ago. What does the discipline of risk assessment have to teach us as a society as we are confronting COVID-19?
PEACOCK: There are some very basic principles that we use in a complex way in business, and the average person can use them as well. Some of this starts with the basics around the probability and severity of impact of a person’s actions. What is the probability of something happening? And if it did happen, what is the severity? And are we prepared to address that impact? It’s a very simple framework that we could probably use much more effectively as a society.
We have historically underwritten the risk for auto insurance based on the area in which you drive, the kind of car you drive, and the number of miles you drive every year. We weren’t prepared for a time when the same you, living in the same neighborhood with the same car, is no longer driving at all, or driving on a set of roads with 10 percent of the traffic level normally associated with them. So we are adapting new products that address today’s behavior environment, that may be priced more on the number of miles you drive. That’s a great example of recognizing that a new set of conditions has arrived, restructuring our view of risk, and then using that view to reconceptualize products in a way that’s markedly different.
S+B: Forecasting is a huge part of the business — both on a macro level, in terms of how the economy performs, and on a micro level, in terms of how many claims you’ll need to pay. What is your approach to forecasting in this uncertain environment?
PEACOCK: We have a very traditional approach that we use. We look at a set of macroeconomic factors that impact the economy as a whole and that impact our business activity directly, like interest rates and home and auto sales. This year, we’re trying to amplify the disaggregation of more real-time transaction data to try to understand spending and usage patterns. That way, we can understand that what’s happening in New York may be different from what is happening in Texas. And what’s happening with this cohort versus that cohort. Doing so can amplify our view on those larger macro factors, as we begin not only to plan for what we think might happen but also to plan for and look at new product lines.
And then I think there are so many uncertainties that are in front of us, which in turn create such a wide range of possible outcomes. So we’re really trying to get to scenario planning now in the shorter term. Lastly, I would say, continuously planning may be our best antidote. No matter how well you forecast what might happen, there’s still a lot of variability in the environment. At the end of the day, it’s the ability to adapt quickly that will define the separation of the winners and the losers, as opposed to necessarily getting the forecast exactly right.
S+B: Is your addressable market by definition smaller than that of your peers because of your commitment to conserving a particular customer base?
PEACOCK: Absolutely, yes. We serve military members, and we serve their families. If you honorably served, you qualify. If you’re married to or the child of someone who served, then you’re eligible as well. This group has 18-year-olds and 80-year-olds in it, so it’s not a homogeneous group. But its members do share some attributes. So we’re really clear about how to segment and target those groups. We still have a huge opportunity, in that only maybe half of the folks who are eligible for USAA actually know that they are eligible for USAA. We have to compete with the likes of Geico, State Farm, Allstate. They’re out there talking to the entire country; we’re talking to one-sixth of that market. We have to be very good at what we do and count on the fact that our existing members are going to be so satisfied with us that they’re going to tell their friends or their teammates and those in their squad or division that the best thing they can do is have USAA for their insurance or their banking. We have been built for 100 years on word of mouth. And we are all about members for life. So we expect people to join USAA for a lifetime. We bring them into the family, deepen the relationship with them, let them see the value, and then expect that they’ll tell their friends that they ought to be with USAA.
We are a big user of Net Promoter Score [NPS], both at the top of the house, at our individual company level, and actually down where we can disaggregate it to the product level. And we have a whole complementary set of satisfaction metrics that we use to supplement NPS. There’s no one in the financial-services business that gives better customer service than USAA, and that is how we distinguish ourselves. You can check and see that we have the highest NPS for the auto insurance industry, the homeowners insurance business, and most lines of banking as well.
S+B: There’s a lot of pressure for leaders to go beyond the core topics of profits, products, and services, and speak to how they can contribute to society or address social challenges. How does that sit with you?
PEACOCK: The obligation for companies to do the right thing because it’s the right thing for shareholders is still, to me, the primary driver. But we have to be more explicit about taking care of the employees and truly creating the environment in which they can feel welcome and feel that they belong. And I think we owe it to society to create opportunities so that folks, no matter their background, can prosper and reach their potential. I believe that we owe support in the communities where we work and live, as well. And I believe that today’s employees, and more so tomorrow’s, and tomorrow’s consumers, are going to demand that big consumer-facing companies act in a socially responsible way, and demonstrate that they take a broader view than just the bottom line. I do believe we’re in a time when companies need to be more explicit about serving a broader set of stakeholders.
Obviously, there was work to do around the disparate impact of COVID in many of the communities where we work and live. So this year, we’ve put about $30 million into very specific military causes to support those who are having a tough time. Most recently, we have announced a set of initiatives that will support education, job growth, and economic mobility for Black and brown communities in the markets where we serve. Interestingly, 63 percent of enlisted women and almost 50 percent of enlisted men in the military are people of color. So we have a huge opportunity to serve our core customer base by serving them.
S+B: Do you have a sense of urgency about getting back to the office?
PEACOCK: We never closed, because we had essential folks who needed to still be in the buildings. Most of them are in our headquarters building in San Antonio. I try to make it two to three days a week in the office. We’ve told our employees that we won’t ask anyone to come back until February 1. Generally, I would tell you that we’ll bring leaders back, and then we’ll bring back people with some critical skills when we believe teaming has the most value. At the same time, we are really working through reimagining what the future of the workforce and workplace is. We’ve all learned our lessons. We’ll offer a lot more flexibility to employees in the future. My biggest concern and issue right now is not the practical day-to-day, but how we continue to maintain and sustain culture, and continue to shape an innovative future for USAA, while we’re limited by connecting through these Zoom screens.
S+B: That seems to be one of the biggest challenges. How do you transmit culture, especially for new hires, when you’re only on videoconferences?
PEACOCK: Necessity says you have to adapt. We rebuilt our hiring and on-boarding programs for new employees. And we have hired and on-boarded all year long. I am greatly concerned about culture more broadly. I think about when I was early in my career, and then I think about young workers not having an opportunity for those same organic interactions. Clearly, we can be purposeful in the distributed environment. But the things that happen every day accidentally are the ones that matter a lot. And I think we’ll find ourselves, notwithstanding all the hype today, in an equilibrium that is more flexible than it was in the past, but that still places a premium on being together, because I think that’s how humans learn.