What Is AAA, Really?

July 28, 2009 by TFB

My AAA membership is up for renewal. I’m talking about the organization that provides emergency roadside service: towing, jumpstarting, and lockout. It used to be American Automobile Association. Now it’s just AAA.

I have been a AAA member for a few years but I still don’t understand what AAA really is. I mean, is it a for-profit company? If so, who owns it? AAA books travel. Who earns the commission? AAA sells auto insurance. Who’s providing the insurance? Does AAA have its own insurance subsidiary or is it just an agent for other insurance companies? If I don’t use AAA travel agents or buy insurance from AAA, am I benefiting from the profits in those areas?

Wikipedia says AAA is a non-profit owned by regional motor clubs. Individuals like myself are members of a regional club, for example AAA Northern New England. It’s still not clear to me whether the regional clubs are for-profit or non-profit. I don’t have auto or homeowners insurance through AAA. Therefore I don’t know who’s behind the insurance. If anyone knows for sure, please help.

Suppose the regional clubs are non-profit. Then they are a form of a co-operative. People band together and provide services to themselves, either in-house or by contract with outside providers. That’s how Vanguard, mutual insurance companies, credit unions, and homeowners associations are organized. A retail chain store I frequent called REI is also organized as a co-operative. Costco, on the other hand, is a for-profit company, although it also charges membership fees. In the health care field, the Kaiser Foundation Health Plan is a non-profit co-operative which contracts with Kaiser hospitals and Permanente doctors, unlike other health insurance companies which are in it for profit.

I wonder why we don’t see more co-operatives. I can see the lack of profit prospect makes people less motivated to start these. But how did these co-operatives get started in the past? The organizers knew there wouldn’t be profit. Was it easier to start a co-operative in the past but more difficult now?

It’s also interesting to note that a co-operative structure does not guarantee the lowest cost or the highest quality. Vanguard does very well in both cost and quality. State Farm as a mutual insurance company isn’t necessarily the least expensive. Other stores often beat REI in prices although REI has a better return policy. For towing and jumpstarting? I don’t know if other companies do it better or cheaper than AAA because I don’t have any experience with others.

The roadside assistance option from auto insurance is cheaper than AAA membership. I wonder if I should use that instead, or just pay out-of-pocket if I need service.

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Comments

14 Comments on What Is AAA, Really?

  1. Wm Tanksley on July 28, 2009 | permalink
     

    I’ve been very happy with my AAA… Except that I’ve used the lockout help more than I’d care to recount :-) , but it’s always been a positive experience.

    Add in the occasional restaurant discount — if you normally go to any that happen to offer a AAA discount, it’s often reasonably good — and perhaps some of the other member services, if you use them (I don’t).

    Anyone have any experience with the roadside service from other providers (insurance, cell phones, etc)?

    -Wm

  2. daddy dub on July 28, 2009 | permalink
     

    The downside to using the roadside assistance option through your car insurance is that it can lead to being “uprated”, aka paying more. Most insurance providers would prefer that you have no claims whatsoever.

  3. Mike on July 28, 2009 | permalink
     

    It’s generally cheaper to self-insure whenever you can afford to take the risk. That said, if the insurance premium is reasonable and it gives you peace of mind, the intangible benefits may make up for the cost.

  4. Dave C. on July 29, 2009 | permalink
     

    I’ve also been wondering if I should forget about AAA and just use the roadside assistance plans with my car insurance. AAA provides a lot of other perks though, that insurers don’t really give, like discounts on travel and such.

  5. longerDollar on August 5, 2009 | permalink
     

    I use the roadside assistance with my insurance provider – they charge $8 per 6 months (costing me $16 / year). The only downside to this is – i can avail it only for the insured car. If you have more than 1 car, you have to buy this on each car making it almost as expensive (or more) as the AAA coverage. Also AAA does provide other services home/auto insurance and their rates are competitive.
    I switched to insurance last year, since most of my travel is booked through travel websites which dont let you apply AAA discounts during booking.

  6. JT on August 5, 2009 | permalink
     

    I joined AAA 3 years back ..I would say I am more than happy with the membership.Every year it gives me back much more than what I spent for the membership.I addition to that I have the peace of mind that I can get immediate assistance if I encounter any issues with the car…

  7. JT on August 26, 2009 | permalink
     

    I have a health insurance background. I decided to shop my policy around. I am in New England Region. Being a new AAA member I called AAA for auto quote. The representative John was very nice and helpful but BUYER BEWARE when he told me that my policy would be for 6 months and not 12 months.I was surprised. He told me the reason, the State of Nh is now requiring 6 month policies..TRUTH METER FALSE I contacted the NH Div of Insurance There is NO NH law on this Truth IS AAA registered with the state of NH to only sell 6 month polices. Oh Gosh lie number 2, I was told that the State of NH has a law that the minimum amount of Rental Insurance you can purchase is 30,000 .TRUTH METER FALSE . AAA should know better. Telling consumers lies will get you in the end and it looks overall bad for your business.

  8. Fern on February 19, 2010 | permalink
     

    Did you ever find out the answer to your question of what is the nature of AAA, cooperative or other?

    By the way, coops are not necessarily non-profit. I am a member of a food coop which is counted as for-profit. For any profits, the Board of Directors decides how much to reinvest into the business, use to pay down debt, or send out as patronage refunds or dividend checks to the membership. Such distributions are usually tied to the amount of one’s purchases for the year.

  9. Fern on February 19, 2010 | permalink
     

    I meant to add that I have AAA membership and car insurance, and have been wondering about what AAA is, too – so I was looking for answers and found your page here.

    I will click the box to get follow-up comments via email.

    Thanks!

  10. john on March 19, 2010 | permalink
     

    Great service and great AAA member discounts. Just beware that once you sign up, they will raise your rates EVERY year. Not much, but a slow bleed. There is “nothing they can do.” Good economy or bad economy, they go up. I know it’s nit picking and value outweighs cost, but c’mon. I can’t raise my rates every year. Looking at BP Auto club again.

  11. Ty on August 9, 2010 | permalink
     

    Do NOT get road side assistance from your Insurance company. Every time you use it they count it as a claim and you don’t want claims because it increases your insurance rates.

    Stick with AAA, it’ll save you money in the long run.

  12. R. Fox on August 14, 2010 | permalink
     

    It’s funny- the original question”Who really owns AAA has never been answered ?

    I am a CAA member. I bet it is all owned by some family in the US and it is really a private for profit company running under the guise (costume) of coop type membership organization.

    I have never seen Board of Director ballots or annual (or quarterly ) financial statements nor have I seen any discussion of financial surpluses.

    Does anybody know the answer ?
    Who really is making the money from AAA ?

  13. D. Barthlow on August 15, 2010 | permalink
     

    Here goes:

    The insurance agency component writes policies for both a AAA subsidiary, as well as other companies. The insurance company that AAA Northern New England uses is owned by Auto Club of Southern California, and it is one of the largest insurance companies in California.

    There are some independent clubs and several regional super clubs in therm of size. AAA Northern New England is owned by Auto Club of Southern California.

    The organization is set up a private not for profit, similar to what health insurance companies like Blue Cross were before privatizing. Profits from areas such as travel or insurance go back in to defray the actual costs of dues, as road service costs are actually higher than what you actually pay. This collateral income keeps those costs lower.

    You do not get a “vote” or financial statements, as a member you are not an owner, there are no owners, and the Board of Directors for the next term is nominated and elected by the existing Board, so if you want reliable road service stick with AAA, if you’re looking to have control over the organization then go out and start your own damn auto club. Get a life!!

  14. R. Fox on August 16, 2010 | permalink
     

    “There are no owners” There are assets ! Don’t think so.

    Seems to be a big commitment to a message here ! Why ?

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