Can lowering insurance minimums help address a crisis for NYC taxi drivers?

In November, representatives from Gov. Kathy Hochul’s office and the state Department of Financial Services met with lawmakers and taxi, for-hire and livery industry officials at the governor’s Manhattan office to address a mounting insurance crisis. American Transit Insurance Co. – a company responsible for insuring roughly 59% of the city’s livery market – is on the verge of financial collapse. The company, according to recent financial reports, is insolvent and posted a $700 million loss in the second quarter. The potential failure of American Transit would be “economically devastating” to drivers, passengers and the city’s economy, state regulators recently said.

In recent reports, the Department of Financial Services detailed the long-term deterioration of the company’s financial position, noting apparently “excessive” bonuses doled out to executives and questioning unverified payment to affiliates. To dominate in the market, the company underpriced insurance, leading competitors to follow suit and create their own financial problems, regulators found.

American Transit has denied that it failed its policyholders, and pointed to “rampant insurance fraud and escalating costs.”

Together with American Transit, just two other companies represent 90% of the livery insurance market, according to the Department of Financial Services. There’s a dearth of other places where drivers can turn if they lose their coverage with American Transit. 

While American Transit’s potential collapse lent urgency to the November meeting, attendees and others with knowledge of the discussions said that officials are also looking at actions to ensure that a similar crisis can’t happen again, and that the livery insurance market is a more thriving and inviting one to enter in the future – a change that, hopefully, doesn’t come at drivers’ expense. New York City Council Member Carmen De La Rosa, whose Upper Manhattan district is home to for-hire vehicles bases, sponsored legislation that some see as a tool to making the industry more attractive for insurers and rooting out fraud. Others see it as a danger to crash victims. “This is one proposal in a suite of solutions that’s going to take not only the City Council to look at what we can do – which is very limited – but also our state partners to come to the table,” De La Rosa said in a recent interview with City & State. She, along with Assembly Member David Weprin, New York City Taxi and Limousine Commissioner David Do, representatives from Uber and Lyft, livery companies and the New York Taxi Workers Alliance were all at that meeting.

The legislation would substantially lower the amount of personal injury protection coverage that drivers licensed by the city’s Taxi and Limousine Commission would be required to have in their insurance policies. Also known as “no-fault insurance,” this requirement would come on top of drivers’ bodily injury liability insurance requirements and is designed to cover medical and other expenses of pedestrians, cyclists, drivers and passengers injured in a vehicle crash, regardless of who is at fault. In the late 1990s, the amount of no-fault insurance required for livery vehicles was bumped up from $50,000 to $200,000. De La Rosa’s bill would bring the requirement back down to $50,000, which matches the current statewide requirement. The aim, De La Rosa said, is to reduce drivers’ costs – though other proponents note that lower payouts will help attract insurers. 

But some industry experts – and other interested groups, like the New York State Trial Lawyers Association – have argued against the proposal, saying that it would leave crash victims on the hook for their own medical expenses. “Reducing available insurance coverage, which protects injured victims, puts New Yorkers at risk and creates a dangerous precedent, shifting the cost burden from responsible parties to those who are harmed,” Victoria Wickman, president of the association, said in a statement.

While fraud may be a problem, it can’t be squashed at the expense of victims, others said. “It’s a weak argument for deciding what the limits should be,” said Bruce Schaller, a former deputy commissioner at the city Department of Transportation. “The limits should be high enough that you’re really encompassing the vast majority of cases so people, in a pretty straightforward way, get compensated for their injuries and losses.” Figuring out what number would encompass the vast majority of cases is something De La Rosa said she’s working on, and acknowledged that the bill is a work in progress. But while proponents argue that $200,000 is too high, and some opponents argue it can be too low and comprehensive data is hard to come by. The Department of Financial Services receives annual financial statements from insurers, but doesn’t receive data broken down to that level, the department said.

“We don’t want anyone to get hurt and not have coverage,” De La Rosa said. “At the same time, if we are seeing abuses in the system and fraud and things of that nature that drive up costs, then we also want to fix for that.”

The legislation isn’t at a place yet to move forward in the council. But even if it were, the crisis facing the industry and the potential collapse of American Transit will likely require a state-level response to stabilize the market in the short- and long-term. The topic of tapping guaranty funds maintained by the state to help cover American Transit’s losses was broached at the November meeting, said New York Taxi Workers Alliance Executive Director Bhairavi Desai. The state Department of Financial Services acknowledged the existence of a livery insurance security fund and a separate general property/casualty fund, but didn’t say whether it could be used to help for that purpose or confirm that a bailout by any means was being considered.

Matthew Daus, a former commissioner of the Taxi and Limousine Commission, wasn’t at the meeting but said that if American Transit is bailed out, it shouldn’t come at taxpayers’ expense. He added that a solution should come with additional reforms that make the industry more attractive for insurers, like more flexible coverage models. Daus is also a longtime proponent of putting cameras in for-hire vehicles.

Tapping the state’s insurance funds wouldn’t cost taxpayers, but at their current levels, the funds on their own wouldn’t cover $700 million. Daus suggested that additional fees could be assessed on insurers for a theoretical bailout. Bloomberg also reported earlier in the fall that Marblegate, a large investment firm that owns many taxi medallions, had been in talks to acquire some of American Transit’s assets.

What state regulators have done, so far, is approve two premium rate increases for American Transit. That action, seemingly a course correction after reported underpricing of premiums, has elicited pushback from the Taxi Workers Alliance as it will raise drivers’ costs. It would be unpopular with the app-based ride-hailing companies too. Driver expenses factor into the city’s minimum pay rate for those companies, and they would likely pass those costs onto customers.

“Whatever actions the city and state take, the solution for this crisis cannot be to pass costs onto consumers who can’t afford it,” said Freddi Goldstein, a spokesperson at Uber, which also supports De La Rosa’s legislation.

While the next steps for the state – and the City Council legislation – are still unclear, Desai offered one idea for an industry shakeup. “We think there should be a driver co-op for insurance,” she said. “The premium is not going to be leftover for profit, and if there is revenue leftover, it will go back to the driver-shareholders rather than being accumulated for private profit.” Desai plans to continue discussing the idea with the state.