By KJ Singh
Approximately 20 years ago, several insurance companies left the NYC TLC market around the same time. This led to a collapse in the market and hard-working TLC drivers had very limited options to find insurance, resulting in soaring insurance costs. After a few years, new companies entered the market and costs went down.
Well, history is repeating itself. Those companies that had attempted to enter the TLC market in the past have left or been liquidated. If nothing changes, it will happen again, and again and again. Ignorance is doing the same thing over and over again and expecting different results (this quote is attributed to Albert Einstein but there is some dispute).
Currently, there is a significant crisis in the NYC TLC insurance industry and things must change. If not, the current generation of NYC TLC drivers will bear the burden and the costs.
Can insurance companies survive, or new ones enter the NYC TLC insurance industry? The short answer: Under the current New York No-Fault Regulation 68 and current pricing, no.
Can the insurance industry recover to make a healthy environment for the benefit of the hard-working TLC drivers in NYC? Short answer: Yes. However, not without regulatory help to fix No-Fault Regulation 68.
That begs the next question: What is No-Fault Regulation 68? At the basic level, the intent of the Regulation is for insurance companies to follow rules and to pay for expenses related to auto accidents regardless of who was at fault. This is for the protection of the public, policy holders (aka insureds) and claimants who are injured. It’s for the common good.
If Regulation 68 was created to help the public, policy holders and claimants, how can it cause hundreds of millions of dollars in losses to the insurance industry at the same time? The answer: Due to organized, targeted and excessive abuse of No-Fault Regulation 68.
Protecting the public, only.
Generally, people complain about insurance and rising costs, which is normal and expected. However, very few people investigate those costs unless there is a catastrophic issue. From the public’s perspective, it becomes a topic when policy limits become an issue, specifically when there are serious accidents and there is not enough insurance coverage. From the insurance industry’s perspective, it’s when financial issues arise causing insurance companies.to potentially become insolvent.
For the protection of the public, policy limits are set by NY State and enforced by NY State Department of Financial Services. Policy limits are a visible issue in the public domain but not an issue in the insurance industry. They are in the business of accepting risk, with the corresponding limits.
As the public, policy holders and claimants are protected by NYS Department of Financial Services, Insurance companies have no such protections. The public is further protected as insurance companies must follow strict laws, regulations and guidelines at the direction of the NYS Department of Financial Services. However, insurance companies are not afforded any assistance to protect from abuse of regulations.
As a result, and at NYS DFS’s own acknowledgement, currently in the NYC TLC insurance industry the magnitude of the financial instability is $800M and increasing. This is a very significant amount that will harm the public, policy holders and insureds.
Basic Insurance
Insurance companies are in the business of offering insurance contracts to clients and paying when claims, or losses, occur. It’s what they do. The basic concept of insurance is the law of large numbers and to pool homogeneous risk together to offer protection against losses.
Insurance companies offer contracts to clients in exchange for an annual premium. If there are losses incurred, insurance companies will indemnify their insured and pay losses or damages. At a high level, insurance companies pool premiums together to protect everyone in the group.
When smaller claims continue for long periods of time it does not make a newsworthy event. That’s the fundamental business of insurance. Accepting risk and paying for losses. When those smaller claims become exponentially bigger and exponentially abusive, they catch up with a company and/or an industry. They always do. With no healthy balance and no protections, insurance companies end up in insolvency. This has been a consistent pattern in the NYC TLC insurance industry. The free market works best when things are in balance for the benefit of everyone. Currently there is no balance.
Specifically, in NYC TLC, the very well organized, targeted and abusive claims are the cause of hundreds of millions of dollars in losses to the insurance industry. The perception that insurance companies are making millions of dollars has obviously been proven false in light of recent events.
Basic Business
Generally, and at a very high level, in the insurance industry when average paid losses increase greater than the average premium charged, companies increase rates to stay solvent and profitable. This is not done immediately nor at random. This is done by looking at several years of historical claims paid and then decisions are made to adjust future premium rates. Of importance, for the protection of the public, policy holders and claimants, any significant changes must be reviewed and approved by NYS DFS before any such rates can be utilized.
Thus, a standard response to increased losses is to increase rates. It’s a basic business model, no matter what the business, to earn a little bit more than your expenses. However, the NYC For-Hire industry is not a standard, healthy insurance industry. NYC TLC requires licensed livery vehicles to carry approximately four times the insurance coverage compared to standard private auto. Again, this is for the protection of the public, policy holders and claimants. It is for the common good, thus it will and should remain the core of every insurance requirement.
The required policy limits are acceptable but unfortunately, and unbeknownst to many, that is what makes honest hardworking taxi drivers a target for NF abuse. They are targeted for their insurance policies. This organized and abusive targeting costs insurance companies significant losses, with no ability to review or protect themselves from abusive claims. As a result, to make up for losses, companies must charge drivers the difference, resulting in higher costs. Claims abuse leads to increased cost to all. It’s not a vicious circle. It’s a road with no end.
At the expense of NYC Taxi/Livery drivers, those that abuse NY NF Regulation 68 are making hundreds of millions of dollars, not the insurance companies. To be clear, it’s not the increased policy limits in the For-Hire industry that are the issue. It’s the sophisticated and very well-organized abuse of the For-Hire vehicle insurance policies.
If Regulatory abuse is the problem, what is the solution?
It is believed Albert Einstein also once said: “We cannot solve problems with the same kind of thinking we used when we created them.”
The core of the problem is long term and consistent abuse of NY Regulation 68. Solutions can only start when there is a strong commitment from the drivers, the insurance industry, NY State Department of Financial Services and the Governor’s office, among other elected officials, to make an adjustment in Regulation 68. It must be kept in place, but at the same time it also must provide safeguards and protections from organized abuse. Once done, the insurance industry will be healthy, financially sound and multiple new companies will enter the market. A newfound balance will result in a healthy insurance industry, thus reducing costs to For-Hire drivers and still providing protections to the public, policy holders and claimants. Protections and balance can only be done with the assistance of NYS Department of Financial Services as they are the appointed regulators for the insurance industry. Recommendations have been sent to the respective authorities on behalf of the NYC TLC drivers and the public. We just hope for a better NYC TLC insurance industry!
KJ Singh is the President/COO of the Maya Assurance Company.
