HD32 - Study and Report on the Liability Insurance Needs of Day-Care Centers and Family Day-Care Homes
Executive Summary: Legislative Request House Joint Resolution No. 93 directed the State Corporation Commission to study the problems which have resulted in the high cost of liability insurance coverage for day care centers and family day care homes and to make recommendations which may result in assisting insurance companies make coverage more available and reduce liability insurance premiums. According to the General Assembly resolution: 1) Day care centers and family day care homes, which have grown rapidly in number in recent years, provide an invaluable service to our society by allowing parents of pre-school aged children to continue in their careers and provide a more acceptable standard of life; 2) The threat of potential liability, especially in providing human services, requires day care centers and family day care homes to carry many types of insurance, yet many day care facilities in the Commonwealth have experienced difficulty in obtaining liability insurance coverage; 3) Although liability insurance seems to be more available recently, centers and homes able to find coverage are being required to pay excessively high premiums, thus greatly impacting the cost of services to the consumer and making day care prohibitive to many; in addition, some facilities have insufficient coverage which leave them exposed to liability; and 4) The Virginia Department for Children, in its 1986 State Plan for Child Day Care, listed the assessment of insurance costs and how they can be reduced as crucial to the improvement of day care services. The Day Care Crisis in Context The liability insurance crisis is not unique to the day care industry. Reductions in liability insurance coverage, policy cancellations or nonrenewals, and drastic premium increases have been experienced by many different types of businesses nationwide. What is different about the day care crisis is that the problems with obtaining and affording liability insurance are interacting with other dilemmas unique to day care. For instance, day care providers offer a service that is used more out of necessity than desire by consumers who, in many cases, cannot afford to have increased costs passed on to them because of higher insurance premiums for their day care provider's operation. Those day care providers attempting to absorb the increased costs, themselves, frequently have resulted to lower staff salaries, elimination of certain services, or overall decreased quality of care. Another problem is the label of high risk that has been attached to day care. Day care has always been a small, low-profit market for insurance companies and according to available data, the losses for Virginia child care claims are higher than the premiums paid for the coverage. The potential liability involved whenever children are the issue has only been exacerbated by the relatively few, although much publicized, child abuse cases in child care. These problems, occurring at the same time insurance companies are reacting to a general liability insurance crisis, have converged to adversely affect the day care industry's ability to offer its services in the manner needed by parents throughout Virginia. Affordability Versus Availability After hearing testimony at four public meetings across the Commonwealth and reviewing information gained from survey responses of day care facilities licensed in Virginia, much of the day care liability insurance problem appears to center around the issue of affordability. The family day care homes with more than three children in care stand out as still having problems in finding insurance, some going without liability coverage at all. Other family home providers have been faced with losing their personal coverage under their homeowners' insurance policy because they take care of children in their homes. Beyond these problems, the concern turns to the drastic increase in premiums for day care facilities that do not have such contingency funds immediately - if at all - available and cannot pass the costs on to their consumers. Although a review of the insurance companies offering liability insurance for day care facilities in Virginia indicates that coverage is in fact available, the day care industry argues that a fine line exists between insurance that is unaffordable and insurance that is unavailable. In other words, while coverage may be offered, the cost for many is so prohibitive that availability becomes a moot point. The question of what is affordable, however, goes beyond the means of this study. Options to Be Considered There are many efforts being made by other states to resolve the liability insurance crisis in general as well as the problems being faced by day care facilities. In Virginia, a separate legislative subcommittee is studying possible insurance and tort reforms through SJR 22. HJR 93 was passed as a supplement to that study and will therefore not duplicate the efforts of SJR 22 but instead supportively point to its final recommendations. Options to be considered by the Virginia General Assembly have been identified in light of this study's attempt to examine the extent and nature of the problem. Potential solutions to help day care providers need to incorporate more than insurance mechanisms and many go beyond the scope of the study since the problems faced by the day care industry reach beyond insurance. Options directed at the problem of availability include market assistance programs, joint underwriting associations, pooling, and limits on policy cancellations, nonrenewals, and rate increases. Options that might assist in making insurance more affordable for day care include tort reform, increased claims data, tax advantages for companies writing day care coverage, claims-made policies, modification of licensing standards for day care, and public assistance measures. |
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