ART vehicles must act now to avoid HUD crisis

29/03/2004

Proposals from the US Department of Housing and Urban Development (HUD) could devastate alternative risk transfer (ART) vehicles writing coverage for long-term care facilities, according to two industry associations.

HUD Notice H04-01 seeks to restrict access to funding under section 232 of the housing act for facilities, which do not obtain professional liability insurance from A-rated (or better) carriers.

Section 232 of the Housing Act provides substantial financial assistance to long-term care facilities, including mortgage loans and insurance coverage.

Approximately half of all long-term care professional liability risks are insured by some form of ART, according to the National Risk Retention Association (NRRA).

And industry voices say the imposition of the rules could be disastrous for both the ART and long-term care sectors.

“Notice H04-01 would create a major crisis for long-term care facilities across the US,??? Ashley Williams, legislative and regulatory director of the Self Insurance Institute of America, said.

The notice also requires the facility must be licensed by the Insurance Commissioner in the state(s) where the healthcare facilities are located.

According to the NRRA, the imposition of minimum rating and licensure requirements pose the most substantial threats to risk-retention groups and their members.

And there is serious concern that captives and other such vehicles would not be able to live under the stringent conditions HUD has laid down.

Care facilities would be required to obtain liability insurance from a carrier rated A or better by AM Best, with minimum coverage of US$1m per occurrence and US$3m aggregate with a US$25,00 maximum deductible.

The SIIA has written to HUD to request a 60-day extension on the proposed rule.

And Jim Kinder, president of the South Carolina Captive Insurance Association, says the ART industry needs more time to adequately put forward its case.

“In response to the lack of capacity, the ART industry has helped to fill the void for professional liability insurance,??? Kinder said.

“Since most affected entities first learned about the rule around mid-March, additional time is required to respond to HUD,??? Kinder said.

Although NRRA intends to submit its own comments in opposition to the Notice, an NRRA spokesman said it urges all NRRA members to submit comments to HUD in opposition of the Notice.