American Transit Insurance Company’s financial issues have sparked conversations about whether the New York Department of Financial Services (DFS) will finally take a stab at either rehabilitating or liquidating the firm that has been practically insolvent for decades under its watch.
However, sources in the NY livery insurance space told this publication that the scope of changes needed to bring sustainability to the marketplace extend far beyond the 51-year-old company, which insures 60% of the city’s taxi, Uber and Lyft drivers.
Maya Assurance, a NY livery insurer of 18 years, plans to exit New York for good in the next few years, president KJ Singh told Insurance Insider US. The company has already reduced its NY business to 50% from 100% five years ago.
Two of Maya’s peers that also entered the market two decades ago have already been liquidated by state regulators. Park Insurance and Global Liberty Insurance were liquidated in 2021. Fiduciary Insurance, an older company, was liquidated in 2017.
While each carrier had problems of its own, sources said ATIC - always the largest player in the market - has undercut prices while the broader industry was grappling with increasing loss costs due to personal injury insurance fraud and regulations specific to the state.
Earlier this year, the company raised prices for the first time in 25 years, by around 13%, one source said, further commenting that this is not enough considering the inflation that occurred in the past five years.
In mid-August, American Transit reported a nearly $770mn loss in its Q2 2024 statement.
Ronald Kuehn, consultant at Huggins Actuarial Services, who has flagged the firm’s inadequate reserves for years, wrote in a December 2023 report that ATIC’s $187mn provision for unpaid losses and LAE is approximately $691mn less than the minimal amount he considers reasonable.
According to a letter DFS sent to the firm in April, the regulator first identified its reserves were inadequate in 1979, and has given multiple warnings since then.
The DFS and ATIC did not respond to requests for comment.
Sources are split on whether the regulator will pull the plug this time to liquidate ATIC, coming face-to-face with a problem that has quietly simmered for decades.
That isn’t an easy call for regulators to make, considering the pressure it would put on livery drivers who would suddenly face far higher insurance prices compared to what they paid ATIC.
“In the NYC Taxi area, rates will be close to, or over, $20,000 per year for one driver or one vehicle,” one carrier source said, whereas current premiums are under $10,000 per year. Another source stressed that ATIC policies should be double the price of what they are now.
Meanwhile, major carriers with nationwide footprints have avoided NY livery business “like the plague”, as one source put it, given its notoriety for challenges including the driving environment in the crowded megacity and regulatory issues.
"Organized fraud syndicates”
While ATIC’s financial struggles are outsized compared to others, the underlying loss trend it grappled with has been shared across the industry.
Many of the problems that the NY livery market has faced stem from the added regulation that the Taxi and Limousine Commission (TLC), which oversees New York City’s taxi industry, created decades ago.
In 1974, New York State imposed Regulation 68, making it a no-fault state. This means if a passenger gets injured inside a vehicle, any insurance claim for personal injury must be paid promptly by carriers without any lawsuit involved.
In 1998, the TLC amended rules requiring that the minimum personal injury protection (PIP) limit for NYC livery vehicles should be at least $200,000 per person, four times higher than the $50,000 required in the rest of the state.
Not all claim pay-outs reach six digits, but legal sources have told this publication that the larger PIP limit has been an “open invitation” for fraudsters in the no-fault state.
“It isn't just what's paid out, it's the feeling that if you go to this insurer, you don't have to worry about the money running out. So, it encourages these insurers to be targeted,” said Skip Short, an attorney at law firm Short & Billy who has worked with NY livery carriers since the 1980s.
In 2023, no-fault claims filings in New York increased 6.5% year on year to 469,901, according to the American Arbitration Association. The number of new filings from 2018 to 2023 has increased 54.2%.
Sources accuse “organized syndicates” of making hundreds of millions of dollars from these no-fault fraud cases because they stage accidents and then the passengers file excessive bills to the insurance companies for treatment.
“It’s created a whole industry of law firms, medical providers, and doctors that do nothing but service no fault injuries. It’s going to keep driving up the rates, unless it’s somehow modified,” one source said.
The insurers who were liquidated by the state in the past few years - Park, Fiduciary, and Global Liberty - each faced their own issues, but a big part of their insolvencies was driven by an inability to handle the sheer number of no-fault fraud cases.
Sources that have been around for decades suggest that there has been a cyclical turnover every 10-15 years.
“Companies come in, they try to survive, yet they go away or stop writing business in NYC. The crux of the issue is the organized abuse of the no-fault regulation,” said Maya president Singh.
ATIC has filed several lawsuits under the Racketeer Influenced and Corrupt Organizations Act (Rico) related to fraud. The most recent case this past January named several personal injury doctors, medical practices and nearly 15 “John Doe’s”.
The nearly 100-page document alleged that these defendants falsified information and over-billed insurance companies for unnecessary medical procedures.
Fraud schemes like this one not only inflate healthcare costs, but force insurers to pass on the financial burden to consumers in the form of higher premiums, sources said.
In a management discussion released in its 2023 annual report, ATIC wrote that “countering the pattern of fraud has become costly and challenging due to the burden on defense and time constraints”.
What could happen next?
So far, the DFS hasn’t been very clear about communicating what its plans are, carrier sources said, instead focusing on canvassing the industry’s view on what should be done.
“They’re slow-walking it because they don’t have a big solution here – they’re hoping something happens,” attorney Matt Daus told this publication. Daus leads the transportation group at law firm Windels Marx and was TLC commissioner between 2001-2010.
Sources have suggested that the best outcome for the DFS would be ATIC raising additional capital or securing reinsurance support. If the company fails to find a solution on its own, the DFS can place it under the receivership of the New York Liquidation Bureau, which will then choose to either rehabilitate or liquidate the firm.
Once the bureau determines there is no pathway to revival, the company will be liquidated, meaning regulators will seize all assets and take on the role of paying out claims.
ATIC customers’ policies will be in force until the next expiration date. Conventionally, March 1 has been a major renewal date for NY livery insurance.
After that, drivers will have to secure insurance from other carriers at a substantially higher price. But putting price aside, there isn’t enough market capacity out there to immediately absorb ATIC's policies, which cover around 76,000 drivers.
As noted by the Insurance Insider US research team, the NY livery insurance market is comprised of thinly capitalized carriers.
For instance, Hereford Insurance Company, the second largest insurer in the market, reported a surplus of $61mn as of June 30. Maya’s surplus totaled around $3mn at the end of Q2 2024.
Even if they decide to incrementally take on ATIC’s customers, existing carriers will likely want to cherry pick the best risk profiles.
The remaining drivers who fail to find insurance in the private market will have to enter the assigned risk pool - a state-run insurance market where carriers registered in the state are allocated to cover insureds who were denied protection elsewhere, offering a higher price.
At this stage, “most will not be able to afford the insurance, and the [livery] industry will shrink,” Daus said.
Changes in the making
After ATIC’s struggles hit the news, New York City Council Member Carmen De La Rosa submitted a proposal in September to amend the local law that would lower the PIP covered required for TLC licensed vehicles in NYC from the current $200,000 to the statewide standard of $50,000.
“Drivers across New York state, in major cities and elsewhere, safely operate within the $50,000 insurance requirement, and drivers in New York City should not be treated differently,” De La Rosa stated in an opinion article on the topic.
Further, she acknowledged that the “inflated threshold” for PIP requirement has made NYC a “target for insurance scammers” and has resulted in spiraling insurance costs for drivers.
This change would be better than nothing in a market where insurers have little tools to combat insurance frauds.
However, industry sources are generally skeptical that changing the PIP requirement alone will stop the legal system abuse or significantly reduce losses. The lowered limits can help reduce loss severity, but it will not help with the frequency of claims.
“If you reduce the limits, will the abuse and fraud go down? No, I believe they are going to cause more accidents to get the same amount of money,” said Maya’s Singh.
A more fundamental solution would be eliminating the no-fault rule. New York is one of the 12 no fault states in the US, and there is a clear correlation between these states and increased fraud that drives loss costs higher, according to the Insurance Insider US research team.
But reversing the no-fault rule will require another level of complexity and political force, considering there will be strong opposition coming from the plaintiffs’ bar, one of the most powerful lobbying forces in Albany, New York.
It’s also a difficult agenda to tackle, as challenging the no-fault law originally made to protect consumers is unlikely to garner political support from the general public.
There have been previous efforts to address no-fault fraud in Albany, says attorney Short, and while the State Senate Committee on Insurance has commented on the fraudulent practices and proposed changes, none of the proposals have been enacted.
It remains to be seen whether any of these scenarios – from the radical correction or liquidation of ATIC, to the regulatory reforms – will bear fruit.
But one thing is certain. If nothing changes, NY livery insurance will go back to business as usual: a weak marketplace comprised of carriers that are constantly under the threat of a financial meltdown.
It's time someone broke that cycle.