On the Record: James Pouliot, CEO of CSAA
June 25, 2006
Almost everybody has heard of the California State Automobile Association, but few people know much about it. Widely known as AAA or the auto club, the great bulk of its revenue -- about 75 percent -- actually comes from selling insurance. It's a vast organization, with 4.3 million members and some 6,000 employees scattered across much of the western United States. It's structured as a nonprofit, but pays state and federal taxes. Behind its public facade and ubiquitous yellow tow trucks, its internal workings are a mystery.
It's fitting then that the man who heads CSAA is simultaneously one of the Bay Area's lowest-profile and most powerful executives. Tellingly, James Pouliot, the organization's CEO since 2001, is an insurance manager, not an auto expert. Since coming from Denver, where he was a senior insurance executive, he has pushed hard to transform the auto club into a more effective business. Those changes have been hard for employees used to the CSAA's traditionally nonprofit service orientation.
In person, Pouliot is a gracious personality, but careful and measured in his words, a man who seems unaccustomed to the limelight. In a rare interview, he recently visited The Chronicle, talking about gas prices, competition from the Internet, the future of road service and why Americans can't let go of the steering wheel. The following has been edited for space and clarity.
Q: Are high gas prices and global warming going to reduce America's love affair with the automobile?
A: I wouldn't think there's going to be much of a change in the role of the automobile, although I think the automobile will change. This is going to force us to be smarter about designs, smarter about fuel efficiency, but it will not change the desire of Americans to get out and see the USA.
Q: Has there been any change in Americans' leisure travel in the last couple of years?
A: Interestingly, our own information would suggest that people are traveling more. A lot of it is pent-up demand. Sept. 11 (2001) really soured Americans on travel. But after a couple of years, people are ready to travel again. We haven't seen fuel prices do much to dampen the enthusiasm of Americans for taking vacations.
Q: Is the traditional summer driving vacation still popular?
A: Very popular. AAA was founded primarily to help drivers who needed protection for their new vehicles. But pretty quickly we became the family vacation specialist. A lot of what we do is support families who want to drive to some destination to enjoy a vacation. We continue to build more product to help people do that.
Q: Are online services such as MapQuest making AAA paper maps obsolete?
A: MapQuest changed the notion of how to get a map. But it has a different purpose than a AAA map. A AAA map is about what can I enjoy along the way as opposed to how do I get from this building to that building. Our maps are still popular. I think we are the largest producer of paper maps. And we have an online product that's very similar to MapQuest. We've been providing electronic maps to our members for seven or eight years. Two years ago we made it available to anybody who wants to go to AAA.com.
Q: What evolution do you see in the automobile in the United States?
A: Despite the fact that you still see people driving Hummers and other very large vehicles, I think you are going to see what you already see in Europe with the introduction of smaller vehicles, more fuel-efficient vehicles, especially for cities. They're easier to park, easier to get around and much more fuel efficient. In fact the first car of that type is coming to California pretty quickly. It's called Smart car, made by Daimler-Chrysler.
Q: Your prediction was made 20 years ago. Instead, SUVs took off and more people started buying light trucks and bigger, less fuel-efficient vehicles. Is that just because gas got cheap again?
A: Probably. Plus, we still are a country of Wild West-oriented people -- big cars out on the open road. I wouldn't suggest that everybody's going to go buy a small car: It's not an either-or situation. There will be some who say, "I don't really care what fuel costs. I want my big car."
Q: Everybody knows you as the auto club. But isn't it more accurate to say that you are a giant insurance company that also happens to offer auto services?
A: We don't think of ourselves as being an insurance company. We think of ourselves as being an integrated membership organization, and we try to find the right bundle of product and services to match the need of each of our members.
We clearly started as an automobile club in 1900, right here in San Francisco. Insurance didn't really come along until 1914. Over time the insurance business has grown. We are a very large player, but we don't see ourselves as an insurance company that happens to have an automobile club.
We see ourselves as a membership organization with automobile insurance, one of the many products and services we provide.
Q: What are the factors that go into figuring out how much you charge for insurance?
A: The insurance factors vary by state. In California, with Proposition 103, it's a very formulaic method that all insurance companies follow. It's primarily based on how often you drive, how much you drive and your driving record.
Q: Can you address the complaint that insurance companies charge people in poor neighborhoods more to insure their cars than in wealthier neighborhoods?
A: We, along with every other company, have different prices by ZIP codes. It's not a red-lining issue at all. It's a risk issue. We charge based on the data that would suggest that a person in a higher-risk area should pay more than somebody in a lower-risk area without regard to any other factors.
If there are more accidents, more stolen vehicles, that area is going to pay more. Urban is more expensive than rural. High density is more expensive than low density because of the nature of what happens in those situations.
It's not a socioeconomic issue from our point of view. We don't know the income of any of our members. We don't ask them. We don't charge based on any of that. We charge based on data regarding the number and frequency of accidents.
Q: Could you tell us about the structure of CSAA?
A: The motor club is a nonprofit mutual benefit corporation, which means it's a membership organization. The insurance company is chartered as a reciprocal, which means it's owned by the insured, much like a mutual company. In both cases, there are no shareholders, no public ownership. But unlike a nonprofit charity, we are a taxpaying entity in both cases. We've chosen to have a single board serve over both.
Q: As CEO, are you trying to maximize revenue and profit, or do you have other primary management goals?
A: When I came here, the not-for-profit notion was viewed by the employees as "That's great! We don't have to make any money." That's the wrong point of view.
We have to be a viable business and compete. We have to run ourselves as efficiently as any company. So we look at ourselves no differently than any public company would look at itself. However, we get to set our targets a little differently because we don't have shareholders looking quarter-to-quarter at how much we made. We set a long-term goal of a 2 percent profit margin.
Q: Is CSAA moving out of San Francisco or are you going to keep your offices here?
A: We have a number of people in our headquarters in San Francisco, and that facility isn't appropriate long-term for us. Over some period of time, we'll take up other space. We believe that's likely to be in the East Bay or Interstate 80 corridor.
We will maintain a headquarters in San Francisco. We are a 106-year-old San Francisco business, and we will have headquarters here. There is not a huge amount of activity going on at the moment in terms of looking for space. We've actually put this project a bit on the back burner.
Q: How many people will work at the San Francisco headquarters?
A: It will be in the 100 to 150 range.
Q: Has Gavin Newsom made any effort to get you to stay?
A: I've talked with Mayor Newsom on several occasions, not so much, "We're leaving, what are you going to do about it?" but, "How can we solve our mutual issues?" It's not been, "What will you give me if we stay?" The conversations have been positive. We don't have a gun to our own heads on making this decision.
Q: What's going to happen with your real estate?
A: I would hope that somebody would acquire it and use it for what it was designed for -- office space. We will vacate when it's appropriate. We own the building and would look to sell it as opposed to continue as a landlord.
Q: Switching gears a little bit, do you think that consumers have been gouged with the price of gasoline?
A: I don't know enough about the economics of the industry to talk about whether there's gouging.
Q: How could you not know? This is your business.
A: Our business is to understand how to help our members. We're more into educating them as to alternative transportation, where to find the lowest gas prices. You can go online at AAA to the fuel finder index and find the cheapest fuel.
Q: I have a feeling that you have an opinion on gouging.
A: Well, I think every American has an opinion when you see record profits. Everybody tends to think that there's some overpricing going on. But I've also traveled around the world, and I say thank God we only pay what we pay.
Q: Why couldn't a travel services group take an advocacy role if gasoline prices are shooting up?
A: Well, we do advocate for responsible transportation. We have a lobbyist in Sacramento and in Washington, D.C., to promote other alternatives besides gasoline-engine vehicles. Our lobbying effort is more about giving more choices, building safer roads, than the economics of the oil industry.
Q: What are you doing with your emergency road service?
A: The whole model of our road service business for 100 years was: you break down, we send the tow truck. How many have seen our yellow tow trucks? It's great. There's a warm, fuzzy feeling when you see those yellow tow trucks. Except that's a model that has run its course.
We are really just solving the immediate problem; we're just moving the car to another location. That's the tow solution. What we're moving toward is a go solution.
Instead of sending a tow truck, maybe we send a light service vehicle that actually fixes the problem and you're on your way. Right now, across the United States, about 55-56 percent of the time, we get you going. In our club, it's about 62 percent. That's means 38 percent of the time you have to be towed.
We'd love to get that number down to something a lot smaller. That's an opportunity to invest in new technology that can communicate directly with the car and actually solve problems remotely.
Q: How did you get into homeowner's insurance?
A: Most of the people who have automobile insurance don't want to go to one source for one product and another source for another. Many years ago, they demanded that we consider the homeowner's product. Now it's core for us. We provide discounts for homeowners who have auto insurance.
Q: A lot of members remember when map selection was a lot more extensive and the number of service calls wasn't limited. Why did you cut back?
A: When I arrived, about four years ago, there was sense within the organization of do whatever it takes to solve any member's problem -- period. Except that there was a very small proportion of our membership that was causing a huge expense for everybody else.
We had members who got towed 40, 50, 60 times a year. We showed up with a smile and took care of them. So, are we running this is a business or not? We can't change the core of who we are and say, "Sorry, we're not going to come and get you."
But we want to teach them to be better members. So after some number of free calls, we'll come and get them and take great care of them. But they are going to pay for it. We want them thinking, "My car hasn't started in the last three years, so maybe I should get a new battery," as opposed to, "Why bother, they'll come up and take care of me."
Q: Are younger people joining at the rate that previous generations did?
A: We are an older demographic organization, always have been. The median age is in the low 50s. We would like to get more of the younger population, and we work at it. A lot of younger folks come in because their parents buy them memberships. But when they set off on their own they think "Why do I need this? I'm indestructible." Then when they have families, they pop into the demographic that becomes responsible again and we get them. But we recognize that we have to become more relevant for younger drivers.
Q: What's CSAA's relationship to the national AAA?
A: AAA is a federation of independent clubs. The national association sets the standards that all clubs comply with and provides some other things, such as the tour books.
Q: Are you satisfied with the quality of your tour book recommendations? Do you worry about the conflict of interest in taking advertising from those people who you also are rating?
A: I do believe that AAA ratings are the most relevant of any organization's, knowing what goes behind it, the number of people involved, the number of inspections.
I don't believe that there's a conflict because the people who are evaluating those properties aren't being rewarded or affected in any way whatsoever by whether they take out an ad. I went into one of our offices; I saw a gentleman walking out with a box of tour books. A couple of minutes later he came in and got another box full of tour books. I stopped and said, "Can I help you? What's going on?" He said, "I just retired and I'm going to travel the United States. I don't where I'm going, but I decided I wanted one of every one of your tour books."
There were hundreds of them, probably worth $1000 or $2,000, and they were free. We don't want to charge people. We need the ad revenue to make the cost of the tour books such that we can give away as many as any member wants.
Q: Is there any possibility that CSAA would merge with another auto club?
A: There's a tremendous amount of consolidation taking place within the AAA federation. Not that many years ago, there were more than 200 clubs. I think we're down to 60 or so clubs. That will continue to go down. We created a holding company for the purpose of bringing other clubs in.
Our choice is to have multiple clubs merge in with us under that holding company. There are currently four member clubs within our holding company: CSAA is one of them; AAA Arizona; AAA Mountain West, Alaska, Montana and Wyoming; and AAA Oklahoma, South Dakota. We continue to pursue relationships with other clubs that we think would be great as business partners.
Q: Some years ago you and other insurers got out of the earthquake business and passed it on to a quasi-public entity, the California Earthquake Authority. How is that working?
A: It is sufficiently funded to handle an event of the magnitude that we would wish never happens. We will be glad that it exists if that event should occur, as opposed to many small insurers, each of whom could be in trouble.
Q: Does your organization offer discounts to domestic partners just like you do to married couples?
A: Domestic partners and married couples are treated the same.
Q: What is it that keeps you focused on your members and not on whatever private interest you may have as managers?
A: We have standards as a AAA club. Central to those standards is member satisfaction. We have to achieve certain levels of performance to keep our accreditation as a AAA club. That includes member satisfaction in road service, in travel, in our travel agencies, our maps, those sort of things.
Q: How is the board selected? I know members do vote, but most CSAA members I know are mystified and end up throwing ballots in the trash.
A: The board has a nominating committee to put forth the slate of candidates up for election. We have many requests from within our membership to be considered and those are taken seriously. Members do vote and they vote either through the annual meeting process or through proxy process.
Q: What portion of the 4.3 million members vote?
A: I don't know how many proxies, to be honest with you, that we receive, but I would say that at the annual meeting, not many. It's a handful.
Q: I'm a CSAA member, and I don't know how much you earn. Why don't you publicize that like any publicly traded company or charity?
A: It's been our policy to not publish any compensation of any employee. That policy has been around for a while. We compensate based on the market. My compensation is probably at the 50th percentile of people who have similar sets of responsibility. I can assure you that I didn't make the list of the top 100 executives that was in your paper recently. I think that we want to pay fairly. As a nonprofit, we don't have stock options. We don't have a lot of those types of things that attracts others to some of our competitors.
Briefcase
Name: James Pouliot
Company: California State Automobile Association
Title: Chief executive officer
Age: 52
Education: Bachelor's degree, University of Notre Dame; MBA, Boston College
Work Experience: President and chief operating officer of consumer division of Royal & SunAlliance USA. Executive vice president, Orion Capital Corp. President and CEO of Viking Insurance Co. President and CEO of Guaranty National Insurance Co.
Participating in the interview were Business Editor Ken Howe; Deputy Business Editor Alan T. Saracevic; Assistant Business Editors David Tong and Sam Zuckerman; staff writers David Baker, Jessica Guynn, Carolyn Said and Todd Wallack; and editorial assistants Steve Corder and Colleen Benson.