USAA - Origins

Origins

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 and thereby would insure one another. 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 in 1924 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 8 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 breakaway 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 a 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 members' 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, the year the United States entered World War II, USAA's membership exceeded 22,000, and its assets had increased five-fold over the previous 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 was double what it had been six years earlier, and its membership had increased by more than a third.