“Too big to fail” is a theory in banking and finance that asserts that certain companies – particularly insurance and financial institutions – are so large and interconnected that their failure would be disastrous to the broader economy and therefore should be supported by government when they face potential failure. The term – which has often been used since the global financial crisis of 2007-08 – was the motivation behind bank bailouts that resulted from the crisis.
In my opinion, the American Transit Insurance Company (ATIC) is not too big to fail. We all know that for-hire vehicle (FHV) transportation in New York City (NYC) is unlike anywhere else. Due to its dense urban population, along with its various transportation models – including liveries, limousines, black cars, taxis and High-volume FHVs – NYC poses different insurance and societal risks than those in other cities and towns. The unique nature of the NYC FHV industry is reflected in the fact that the city is the only municipality in the country exempted from the laws in effect in every state, overseeing companies like Uber and Lyft.
The following are some cold, hard truths about ATIC:
- They are not rated by AM Best or any other rating agency.
- They are a family-owned business that has not evolved with the times.
- They hold approximately 60% market share in the NYC FHV industry and have been underpricing the risks inherent here for decades.
Most importantly, ATIC is insolvent – to a degree that the New York State Department of Financial Services (DFS) should not permit them to continue to operate. To protect consumers and creditors, the DFS Liquidation Bureau should immediately take steps toward the dissolution of ATIC.
While updated technology solutions have allowed our industry to evolve into the 21st century, ATIC has not likewise evolved. The NYC FHV insurance marketplace needs more competition, providing salutary benefits to consumers and insurers. Conventional rating systems are primarily based on past realized losses and the past records of drivers with similar characteristics. As we approach the 2nd quarter of the 21st century, these rating systems are poor proxies for predicting risk.
Accurate insurance prices are optimal for policyholders, insurance companies, and the FHV industry because accurate prices result in an efficient level of risk-taking. Accurate prices also equitably distribute the risk cost, so riskier insureds pay more than safer ones.
The solution to the ATIC dilemma can easily be solved. There are other insurers ready, willing, and able to come into the NYC FHV marketplace to write usage-based insurance and other types of policies. While DFS claims to encourage filings from insurers for products that use telematics devices – including usage-based insurance products – its current regulatory regime and timetable for rate and form approvals prevents major “name brand” and A-rated carriers from entering the marketplace.
Lowering the NYC-mandated PIP coverage from $200,000 to $50,000 is not a solution to the problems facing ATIC and the rest of the NYC market. ATIC’s $450 million lawsuit against various medical providers will not pull them out of the enormous hole they are in.
Instead, Usage Based Insurance (UBI) could help. UBI is based primarily on data collected from a vehicle – including but not limited to speed, braking, the historic riskiness of particular roads, driving actions, and distances, time on the road, and time of day/night traveled. Linking insurance premiums to driving performance allows insurers to price premiums more accurately. UBI plans help drivers embrace good driving habits, but among other things, they also provide real-time insights and feedback about driving tendencies – helping drivers to understand mistakes and recommend techniques to improve driving skills and become a safer driver.
Currently, there is virtually no competition in the NYC market. Competition benefits consumers because it helps contain costs, improves quality, and encourages innovation. A lack of competition tends to decrease quality and discourages innovation. No A-rated carriers have attempted to enter the FHV insurance marketplace. Have any regulators thought to consider why this is the case?
Too many good FHV drivers are paying for the poor driving habits of bad drivers, but existing technology is available to price the risk appropriately.
I have an insurance and regulatory solution with close ties to “brand name” and A-rated carriers who personally expressed to me a desire to write UBI policies in the NYC FHV marketplace. To get these carriers to the proverbial table, certain regulatory strongholds must be loosened (without jeopardizing public safety) and/or the timeframe for regulatory approval of rates/forms must be much quicker. Carriers in this space must be able to react to changes in the market more expeditiously than under the DFS’s current regulatory regime.
DFS has known for decades that ATIC is insolvent. The taxpayers should not bail them out. No one is going to buy ATIC or their book of business. Asking property and casualty insurers to cover ATIC’s losses is not a real solution. A one-time assessment of other insurers is not equitable. And, as mentioned above, ATIC’s $450 million lawsuit is a long shot at best, but even if it’s successful, it would not make them solvent. That’s how deep they are in the proverbial hole.
If there were no other alternatives, perhaps then we could say that ATIC is too big to fail. But as I stated, there are alternatives that would benefit the FHV industry and stabilize the insurance marketplace.
I am asking for a meeting with the DFS Commissioner and the Chair of the Insurance committees in the New York State Assembly and Senate to present my solution, which won’t cost the state or the taxpayers one penny. If DFS and/or the state Legislature were to accept my solution, it could be brought to market in relatively short order.
Other solutions may be available, but DFS and/or the NYS legislature must be willing to work with the carriers and other 3rd parties that have the ability to bring about needed change to the industry.
When a member of the public enters a FHV for a trip in NYC, they expect that, in the event of an accident, there is sufficient insurance coverage. When regulatory authorities permit a carrier who dominates the NYC FHV insurance marketplace to continue to operate and write policies when they are insolvent, with no rehabilitation plan in place, the riding public is at risk – to a degree that they can but never seem willing to try to anticipate. This means that the regulatory authorities are abrogating their duties to the riding public.
Simply put: The riding public and the drivers serving them deserve better.
