New York weighs cutting cab insurance by 75% to $50,000 to help drivers

The New York City Council will introduce legislation this week that would drastically reduce the amount of insurance coverage that taxis and ride-sharing vehicles must maintain, seeking to limit the potential fallout from the insolvency of the city’s largest taxi insurer.

Northern Manhattan City Councilwoman Carmen De La Rosa wants to lower the minimum personal injury protection coverage for commercial ride-sharing cars in New York City from $200,000 to $50,000. The change would bring insurance requirements in line with carpool levels in the rest of the state, helping to lower premiums in an industry plagued by financial problems.

“I represent a community in northern Manhattan where the livery industry is still one of the economic engines for my community,” said De La Rosa, who will introduce the bill Thursday.

She is urging the board to act just weeks after the state Department of Financial Services warned that American Transit Insurance Co. has “massively deficient” reserves and is “exposed to a significant risk of failure”. The company, which insures at least 60 percent of the city’s roughly 120,000 cabs, taxis and ride-sharing vehicles, disclosed in its latest filings that its losses exceed reserves by about $700 million.

A spokesman for American Transit did not respond to a request for comment.

Insurance industry experts have blamed American Transit’s financial circumstances in part on its practice of charging artificially low premiums out of proportion to its liabilities. If the company fails, the result would be “economically devastating to New York’s drivers, passengers, health care providers and economy and disrupt vital transportation services,” DFS said.

The agency, which regulates all insurers nationwide, is working with American Transit on a plan to shore up its finances, which could include a sale or liquidation.

Extortionate premiums

De La Rosa said her legislation, which would require a majority of the Council and the mayor’s approval to pass, is designed to help the city’s black car and taxi drivers, who have struggled since ride-sharing apps changed industry economy. Many drivers are saddled with debt after buying once-valuable Medallions, relatively rare city-issued licenses to operate taxis, before their value plummeted.

If another company were to take over American Transit and charge premiums high enough to cover its liabilities, the city’s taxi drivers could see their premiums, which range from $4,000 to $6,000 a year, rise by as much as 30 %. That would be devastating for city drivers, De La Rosa said. Even at current levels, taxi drivers’ premiums are “so exorbitant at the moment that many drivers fear losing their livelihoods”, she added.

Personal injury protection, or PIP, also described as “no-fault insurance,” covers medical costs and lost wages for drivers or their passengers if they are injured in a car accident, regardless of which party was at fault. New York is one of 12 states in the country that requires drivers to have such personal injury protection coverage, and the city has one of the highest coverage level requirements in the country.

Read more: NYC Cab Crash sends Rider to ‘Nightmare’ for insurance money

New York City’s $200,000 personal injury coverage requirement was implemented in 1998 after a series of high-profile accidents resulted in devastating injuries to pedestrians and passengers.

In the 1990s, the rate of accidents involving for-hire vehicles rose steadily, said Matt Daus, former chairman of the city’s Taxi and Limousine Commission, who is now chairman of the Transportation Practice Group at the law firm Windels Marx.

“When these laws were passed, there were no systems in place to get bad drivers off the road,” Daus said. But traveling in taxis has become much less risky since then, he said.

New York City’s high PIP coverage requirements have had the unintended negative consequence of becoming a magnet for would-be fraudsters, city and state regulators said. In no-fault insurance fraud schemes, groups of people cause accidents or fabricate or exaggerate injuries sustained in accidents to exploit the possibility of a six-figure payout.

A 2023 DFS report found that 75 percent of all fraud claims the department received that year were cases of suspected “no-fault” insurance fraud.

De La Rosa said the high coverage requirements also discouraged other insurers from trying to compete in the market — making American Transit too big to fail as one of the only companies operating in the industry.

Photo: A taxi outside Penn Station in New York, US, Thursday, September 5, 2024. New York’s insurance regulator has issued a damning report outlining the dire financial condition of the country’s largest taxi and for-hire insurer city ​​because as well as dozens of potential financial discrepancies and accounting problems, warning that the consequences of failure could be devastating for tens of thousands of drivers.

Copyright 2024 Bloomberg.

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