Looming Insurance Crisis Threatens Taxis and Ubers in New York City

NEW YORK — The largest insurer of taxis and Ubers in New York City is on the verge of a financial collapse that could force thousands of cars out of service and lead to higher costs for drivers and passengers.

The insurer, American Transit Insurance Co., provides coverage for about 74,000 for-hire vehicles in the city, or more than 60% of the available cars, according to city records.

In its latest financial filing, the privately owned company reported that it was insolvent, with more than $700 million in losses from existing and projected claims from past accidents — a huge hole that has been growing for years in part because of questionable financial practices, according to state officials.

That means American Transit does not have enough money in reserve to pay out those claims despite years of collecting premiums on those policies. Instead, the company has managed to continue operating by using money coming in from new premiums to help cover those costs, essentially leaving its current clients underinsured in the event of an accident, state officials said.

While American Transit still has options, it has faced a deepening crisis as its losses have mounted. Were the company to collapse altogether, thousands of taxis, Ubers, Lyfts and livery cars would be immediately taken off the road until they could find other insurance, which is likely to be difficult and costly since most large insurers do not offer this specialized insurance in the city.

Drivers of these vehicles would lose their income, while riders would have to find another way to get around. Hundreds of millions of dollars in accident claims and medical bills could also go unpaid.

It is unclear how quickly new insurers could step in to take over American Transit’s policies, in part because of the higher costs and risks of covering for-hire vehicles that spend far more time on the road than personal cars.

These commercial policies cover injuries to drivers and passengers as well as vehicle and property damage from accidents.

American Transit “is at significant risk of failure,” Bernard Ganley, a deputy superintendent for insurance at the New York State Department of Financial Services, warned in a letter to the company in April. The document was released publicly Sept. 5, in the same week that Bloomberg News first reported on the company’s struggles.

State officials said American Transit’s inadequate reserves were not illegal, though the extent of its insolvency has given the Department of Financial Services, which regulates insurers, legal grounds to take over the company to prevent further financial problems.

Along with Ganley’s letter, the department released two reports about American Transit’s finances from 2014 to 2019, which said that the company’s books showed evidence of accounting errors, unverified expenses and potential mismanagement.

According to the reports, American Transit paid nearly $100 million in commissions to an affiliated company for work signing up new policyholders and renewing policies, but the department could not confirm that the work had taken place.

American Transit also paid nearly $10 million for unclear reasons to Global Biomechanical Solutions, a consulting firm in which American Transit CEO Ralph Bisceglia and a daughter-in-law of its co-founder had controlling interests, according to the reports.

American Transit additionally gave out more than $13 million in company bonuses amid its financial woes.

In response to these findings, American Transit told state regulators that some of the money paid to the affiliated company had in turn been cycled back to American Transit. American Transit also said that the funds it had given to the consulting firm had been used to cover the firm’s expenses, including salaries. Regulators, however, concluded that the insurance company had not provided enough evidence to support these claims.

The day that the state reports were released, American Transit emailed a statement to The New York Times saying that it “has consistently paid all of its financial obligations, including verified claims and expenses, and continues to do so” and that it “firmly and unequivocally denies any allegation that we failed in our responsibilities to our insureds.”

Last week, Bisceglia did not specifically address emailed questions from the Times about the company’s finances, other than to say that allegations about “the misappropriation of funds” were “completely baseless.”

James Parrott, a senior fellow at the New School’s Center for New York City Affairs, reviewed the company’s most recent financial filings, which disclose what he described as “significant assets” of roughly $500 million that include investments in the stock market. But Parrott noted that the money did not seem to be enough to offset the current pace of losses.

State regulators have ordered American Transit to explore all options to obtain more funding, including a potential sale of the company. The firm submitted two remediation plans, which included rate increases and setting up a blockchain platform where policies could be bought and sold as nonfungible tokens.

State officials found both plans insufficient and said they were continuing to work with the company to address its financial situation.

Saif Aizah, 51, a Lyft driver, has insured his car with American Transit since 2016. He said he would be financially ruined if he had to stop driving because of an insurance lapse.

“This is the only source of income I have,” Aizah said.

American Transit’s chronic financial problems have been known for years, according to state insurance officials and industry experts. And yet the firm has continued to expand and to pursue business with ride-hail company leaders, offering in a 2017 email to host some at a Brooklyn Nets game at Barclays Center.

Andrew Don, the chief operating officer of Research Underwriters, a transportation insurance broker that sells similar policies across 40 states, said that he has steered customers away from American Transit because he was skeptical that the company had the reserves to back its policies.

But a lapse in state oversight allowed American Transit to escape wider public scrutiny. Under state law, the Department of Financial Services is required to examine and report on the finances of companies like American Transit every five years. The two recent reports, however, which were conducted in 2019 and 2020, were only finalized in April and were the first released in nearly 40 years.

Still, American Transit’s struggles have highlighted what some drivers and companies view as the city’s onerous requirements for commercial insurance — including coverage of $200,000 per person for personal injury protection, four times more than in the rest of the state — which they say has led to higher premiums, deterred more insurers and incentivized fraudulent claims.

American Transit has suggested that insurance fraud contributed to its financial problems. In response to an email from the Times seeking clarification about the company’s statement this month, American Transit said that “rampant insurance fraud” threatened the commercial market and allowed lawyers and “opportunistic medical service providers” to inflate costs, undermining the insurance system.

American Transit was started in 1972 by Edward McGettigan Sr. and Philip Bisceglia, and today their family members continue to run the company from an office building in Freeport, a village on Long Island, according to state officials and insurance records.

Almost from the beginning, the company had financial problems. State regulators flagged its reserves as inadequate in 1979, and later found increasing levels of insolvency in eight examinations that were conducted from 1987 to 2020. State officials said it was not clear why five of those earlier reports had not been released, but they said their findings had been shared with American Transit.

“While it took time to untangle the complex issues that this administration inherited, the completion of these examinations provides the public and policymakers with critical information to begin charting a path forward that protects all New Yorkers,” said Adrienne A. Harris, the superintendent of the Department of Financial Services.

State officials said they had made past attempts to intervene, including filing a petition in state court in 1979 seeking to liquidate the company. The effort failed.

In 1987, state officials filed a petition to put the company into rehabilitation, a formal process meant to restore it to financial stability, which was resolved when American Transit secured more funding.

But four years later, in 1991, state officials again filed a petition to rehabilitate the company and later moved to liquidate it.

American Transit challenged those proceedings, and in 1996, reached a settlement with state regulators that allowed it to remain in business under certain conditions, including that it be closely monitored by state regulators.

Since then, however, the firm’s finances have continued to deteriorate. Last week, state officials said they had not been approached by any credible company seeking to acquire American Transit or its insurance policies.

If it is not purchased, the company could go into receivership with the New York Liquidation Bureau, which would use American Transit’s remaining assets or a state fund to pay off active claims, said Mark Peters, a partner at the law firm Peters Brovner and a former head of the bureau.

An executive for the city’s second-largest insurer of for-hire vehicles, Hereford Insurance Co., expressed caution about the possibility of taking over for American Transit.

“It’s difficult to blindly accept business,” said Keith Greenbaum, Hereford’s senior vice president. “We have to maintain great precision in rating our risks.”

Hereford serves 19% of New York City’s market, or roughly 22,000 for-hire cars.

David Do, the chair of the city’s Taxi and Limousine Commission, said that city officials were taking the American Transit situation “very seriously,” as “its stability has a direct impact on our fleets, drivers and ultimately passengers.” Citywide, more than 780,000 trips are taken each day in taxis, Ubers and Lyfts.

There have already been questions about American Transit’s ability to pay claims. In February, Uber sued the company in Manhattan federal court, claiming it had failed to pay out in 23 cases involving Uber rides, prompting the victims to sue the ride-share firm, according to legal papers.

Josh Gold, an Uber spokesperson, said that the American Transit crisis should be “a wake-up call for policymakers.”

“It’s time to protect hardworking drivers by fixing out-of-control minimums and a broken tort system that incentivizes abuse,” he said.

The uncertainty worries Augustine Tang, 40, who inherited a taxi medallion from his father and now rents his vehicle to other drivers. He paid a $9,000 premium to American Transit this year and is counting on the company in case of an accident.

If he suddenly finds himself without insurance, “then I would basically be on the hook,” he said. “It’s scary to think that.”

This article originally appeared in The New York Times .