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Day Care: Tightening Insurance Squeeze

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Twenty-four family day-care centers in Rhode Island were forced to close their doors last month because they could not get affordable liability-insurance coverage.

And, as officials in that state sought solutions to an insurance crunch they say is "reaching a crisis stage," legislators and policymakers in other states were considering legal moves to halt a surge in policy cancellations and rate hikes that is threatening the child-care industry nationwide.

"No program seems immune," said James Strickland, chairman of the insurance commission of the public-awareness group Child Care Action Campaign. "It's not a matter of what will happen, but when it will happen."

In a nationwide survey of 1,000 child-care providers and 200 Head Start centers this summer, the ccac found that 70 percent had experienced either policy nonrenewals or cancellations or skyrocketing rate increases--some as high as 20 times the previous year's level.

Past Record No Safegaurd

The survey also found no correlation between the centers' current insurance problems and their history of claims or losses.

"Someone who has been in business for 19 years and has never filed a claim is just as likely to have insurance cancelled, nonrenewed, or fees raised as someone who filed a big claim last year," Mr. Strickland said.

Said Joani Lupovitz, a spokesman for Lieut. Gov. Richard Licht of Rhode Island, who is working with day-care center representatives to ease the worsening problem there: "If the insurance crisis continues, it could force [all of the centers] to close."

The insurance outlook for Head Start programs, not now as bleak as that of commercial and home centers, is expected also to worsen. And because these programs are federally funded and tuition-free, observers warn, providers will be unable to pass rate increases on to parents.

The uncertainties facing child-care providers were underscored by a second summer survey by the ccac--this one of insurance commissioners in the 50 states. "They all are saying it is extremely difficult, if not impossible, to determine who will be writing coverage from one day to the next," said Mr. Strickland.

The insurance industry's recent policy and rate changes have been dictated, according to many, by poor economic conditions, including falling interest rates, and the soaring sums for damages awarded by juries in lawsuits brought against public entities. (See Education Week, Sept. 4, 1985.)

Options and Security

But intensifying efforts to ease the current crisis should give child-care providers greater security and a broader range of insurance options in the future, Mr. Strickland said.

The ccac has established a national working group on the problem that includes members from the National Association for the Education of Young Children, the Children's Defense Fund, the Children's Foundation, the National Head Start Association, and the Insurance Information Institute. Marshall McLennan, a national insurance broker, is also a member.

The working group's efforts "look very optimistic and very close to solution," according to Mr. Strickland. Although he could provide no details on the group plan being formulated, he said members of the organizations helping to draft the plan would be eligible for coverage under it.

Group Arrangement Backed

Thomas M. Scott, president of the Insurance Management Corporation in Kansas City, Mo., which insures Kinder-Care Centers Inc., the nation's largest provider of licensed child-care services, supported the concept of a group arrangement and predicted more centers will join such plans.

Kinder-Care Centers, which operates programs in 700 cities in 40 states and two Canadian provinces, opened its 1,000th center in Atlanta last month.

"Because of the fact of the number of locations we have and the size of the account, our program is handled similar to any other major account," noted Mr. Scott, who said Kinder-Care has not been as severely affected by the insurance crunch as other centers. Although the corporation's premium rates have increased, he said, they remain "substantially" lower per child than the fees paid by independent centers.

State Lawmakers React

Meanwhile, legislators and policymakers in some states are considering possible legal solutions to the insurance problem and some state officials have already acted to regulate insurance providers' practices.

In California, where hundreds of day-care homes and centers have been threatened by rate hikes and policy cancellations, the legislature is considering a bill that would require companies licensed to sell liability insurance in the state to join a joint underwriters' association.

According to the bill's sponsor, Senator John Seymour, the underwriters' association would ensure the availability of such coverage for all child-care providers in the event that they could not find affordable coverage.

At least 13 insurance companies have already agreed to join a "Marketing Assistance Program" similar to the association proposed in Senator Seymour's bill, and another 25 to 30 have expressed interest in the program.

The Seymour bill is currently in the Assembly Ways and Means Committee, and the Senator said he plans to wait until January before moving it forward. He will do so only if the voluntary assistance program has not yet been fully established, he said.

'Low-Risk' Industry

In Massachusetts, where there are 8,000 licensed family day-care providers, Gov. Michael S. Dukakis plans to meet on Sept. 12 with state officials and representatives of liability-insurance companies to open a dialogue on the problem. Because of studies showing few actual claims against day-care facilities, the Governor sees the field as a "low-risk" industry, according to Connie W. Williams, chief policy analyst in the Governor's office of human resources.

In Washington State, where there are 6,800 licensed family day-care homes, the commissioner of insurance has prohibited as an unfair business practice attempts by insurance providers there to cancel homeowners' insurance because of the existence of a day-care center in a home. According to Scott Jarvis, deputy insurance commissioner, the regulation was adopted as an emergency measure in June but was made a permanent rule over the summer.

In addition, officials in a number of other states--including Colorado, Idaho, Kansas, Maryland, and Oregon--have banned unilateral mid-term changes in liability-insurance policies.

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