USAA CEO: Car insurance rates are up but insurance companies are still losing money

Fortune

Inflation in the insurance sector is starting to normalize—but Wayne Peacock says rates won’t come down to pre-pandemic levels.

Transcript

00:00 I thought you were going to ask me which book I was reading, but I escaped that one tonight.

00:04 Did you read one last night just so you'd have an answer?

00:08 No, I didn't. But I do have my answer for you, but I'll save that for the next one.

00:13 What is it?

00:13 I will tell you my all-time favorite business book is really "Boys in the Boat" because it's

00:19 a great history lesson of what happened in the '36 Olympics. There was nothing like putting an

00:27 eight team together and see if you can make that work in one boat together.

00:31 Welcome to Leadership Next, the podcast about the changing rules of business leadership.

00:37 I'm Alan Murray.

00:38 And I'm Michal Evron.

00:39 There is this perception, and a lot of it is real, that it's become harder and harder

00:46 to own a home. Auto insurance is going up. What, from your perspective, what are you seeing with

00:54 some of those macro trends, and how are they impacting your particular membership?

00:58 Inflation related to repairing cars and replacing cars outpaced headline inflation

01:06 by whatever definition you want to use through the early stages of this. And it has put

01:11 tremendous pressure on auto insurance providers across the country. And the unfortunate side of

01:18 that is that we have raised rates in a pretty significant way across the industry. In 2022,

01:25 the auto insurance industry lost eight cents for every dollar of premium that it wrote.

01:30 And you've seen the impact of that through increased rates.

01:35 About inflation and as it relates to the auto insurance environment, it is coming down. And it

01:42 is coming down, maybe not back to historical norms, but we do see those trend lines in a positive

01:49 way. And our sense is over the next couple of years that we'll get back into a more normalized

01:55 environment. But the reality is auto insurance will be more expensive, dollar for dollar,

02:01 than it was pre-pandemic or pre all of this inflationary challenge.

02:07 The issues around homeowners is really much broader, right? The cost of a mortgage is

02:13 significantly up from two or 3% to six or 7%. It is putting a big barrier into home ownership.

02:20 That doesn't get solved until interest rates come back into a more reasonable way.

02:27 Wages catch up a bit, but the bigger challenge around homeowners insurance will be weather

02:34 related risk. And you're seeing many carriers today who are pulling back from markets.

02:40 So it isn't just about the cost. It's about the availability as well. And this is a big

02:46 challenge for us as a member owned association. We're not in the business of saying no to our

02:52 members, but we are in the business of maintaining financial strength. So we're being very

02:56 thoughtful and careful on kind of trimming around the edges of our risk profile to limit exposure

03:04 where we can, but still try to say yes to as many members as possible. But I do believe we have to

03:10 have more of a national conversation on what's happening with homeowners insurance here over the

03:16 next couple of years. You and I have spoken in the past about the importance of purpose-driven

03:22 leadership in enabling leaders to get through multiple crises happening at the same time.

03:30 Explain why that's important to you and what it means and how it works at USAA.

03:34 Look, it comes back to why are we here and what do we stand for and where do we focus

03:41 every single day? And I think if you walk the halls of USAA and talk to our teammates and you

03:46 can pick whatever random sample you want, you'll find that people want to be here because there is

03:52 exciting and rewarding work. They love the teammates who they work with, but there's always

03:59 some connection, in most cases, a personal connection to the why behind the work and

04:05 knowing that our work matters past just being really good at the work. Because on the other

04:10 side of that are folks who have put a uniform on, who put themselves in harm's way, who have

04:15 sacrificed greatly so that we get a chance to live in this wonderful free country. And those people

04:21 who sacrifice don't get paid a whole lot from the government. They don't have a lot, but they do it

04:25 every single day. So our employees have this sense that the work matters past the work of the work.

04:32 And I think that helps drive discretionary effort, a pursuit of excellence, and a desire to be even

04:39 better tomorrow than we were yesterday. USAA has a strong commitment to diversity,

04:46 equity, and inclusion. You can see that in your employee numbers, the mix of your employee base.

04:53 And it matches, of course, the commitment of the military to diversity, equity, and inclusion. But

04:59 we're operating in this strange political environment where you're in Texas. The governor

05:04 of Texas has actually directed state offices to ignore diversity and equity goals. How does that

05:13 affect you? How do you deal with that or react to that? Well, I'm going to answer in a way that

05:18 probably isn't surprising to you. It comes back to the mission and the mission of serving a very

05:24 diverse military community. And I think today the world's moving fast, as we know. The world is

05:30 complex. The world requires broader thinking about how to make the best decisions. And I think our

05:38 employee base needs to reflect that diversity, all manner of diversity, in order to best prepare

05:45 ourselves to serve today and tomorrow's military. And when you think about my earlier comment of

05:52 letting the Navy in in 1923, in 1996, we opened up to enlisted. In 2009, we opened up to enlisted

06:00 no matter when they served. So the diversity of our membership base has expanded greatly,

06:07 and it continues to change. And this, for us, comes back to connecting to being able to serve

06:14 with relevance. If you don't understand who you're serving and what they need, it's really

06:19 hard to continue to innovate and build great capabilities for them. So for us, it's a mission

06:23 imperative, but it's also something we've been doing long before DEI became a thing.

06:30 [Music]

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