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Playing it safe: Allegations of abuse and other risks make it more difficult to underwrite child-care centers. (Underwriting: Property/Casualty).

Child-care insurers are enforcing more strictly their underwriting guidelines in response to allegations of child molestation and other emerging risks.

Ron Norton, a senior account representative working exclusively with camp programs for managing general underwriter K&K Insurance, is already seeing this reaction from insurers. "In years past, insurers would provide the coverage with little or no underwriting intervention. Now they are asking, 'How do you do the screening.' What was a recommendation is now a requirement," Norton said. In the case of K&K, "if the camps don't go through the necessary steps, the insurers laser out the coverage." Besides camps, K&K also specializes in sports, entertainment and leisure risks.

Markel Insurance Co. looks carefully at the day-care center's or camp's procedures, checking to make sure an employee handbook exists and that specific rules prevent adults from being alone with children.

Sarah White, a policy manager for the Alliance of American Insurers, agrees that the awareness level about the importance of background checks and strict underwriting has been raised. "It's a hard line to write because so many things can happen. You really have to understand what you are insuring," White said.

Pricing Considerations

Premiums are up 10% to 30% for summer camps, day-care centers and nursery schools, but the price increase is more a function of the hard market, poor investment returns and other emerging risks, rather than the sexual abuse allegations. Or, as David Price, a vice president at managing general agency Burns & Wilcox, put it, "The way the market is, you can get the price".

Price, who said Burns & Wilcox writes a significant amount of day-care and nursery-school coverage through excess and surplus lines, also noted that prices are up because of the increase in the number of claims and size of the claims that allege bodily injury and mental anguish. "Parents expect a certain sophistication in day care; they DEMAND a higher standard of professionalism," he said.

Thomco, a Kennesaw, Ga.-based managing general agency that writes $40 million in coverage for day-care centers annually, sees property claims driving up loss ratios and premiums. Thomco President Greg Thompson said premiums for daycare centers are increasing by 20% due to property claims caused by water damage and mold, not because of alleged sexual abuse. Thompson made the point that 99% of day-care workers are female, and males are involved in most sexual abuse cases against children. Day-care centers are also in a public setting, with parents coming in and out during the day, and some centers even have closed circuit televisions or cameras with Internet access that allow parents to watch their children from their work computers.

Britton L. Glisson, president and chief operating officer of Markel, said there is no relationship whatsoever between the increases and the problems in the Catholic Church. Markel writes about $40 million in annual premium in day-care centers and camps.

"We've underwritten sexual abuse for years and we have lots of information about it; we know what to look for," Glisson said.

Broker Ed Schirick, an industry veteran, said insurance underwriters may be responding to headlines when raising rates. "The matter is hard to quantify. The story is sensational and that in itself drives underwriting perception. But the folks that run the day-care centers and camps are aware of the exposures and work hard to manage and control them. Most are well motivated and don't want anything to happen," said Schirick, who heads Ed Schirick & Associates.

The business of insuring camps, day-care centers and nursery schools swings between standard and excess and surplus lines, depending on risk factors. Gary Tiepelman, senior vice president of excess and surplus lines carrier Scottsdale Insurance, said the company has seen a 24% rise in this business this year because traditional insurers are puffing out.

In the Beginning

The first bailout of this coverage to E&S occurred in the early 1980s, a reaction to the California McMartin case. In 1983, owners of the McMartin Preschool in Manhattan Beach, Calif., were accused of sexually molesting their students. They were subsequently acquitted, but the case left a legacy ranging from child-care guidelines to stricter licensing of facilities.

"A big case that draws the headlines creates a stir in the marketplace. But by the time it's resolved, a big change occurs in the market," Tiepelman said. Scottsdale has continued its coverage uninterrupted over the past 20 years, writing about $8 million of premium in this line annually. Tiepelman said Scottsdale always wrote sexual abuse as a sublimit on the policy, which is one way to remain in this business for 20 years. "The new entrants who write this coverage under the regular policy limit--those are the ones who get back out," Tiepelman said.

Schirick said most standard companies write sexual misconduct coverage up to $1 million in primary policies. The major standard lines writers include Markel, TIG, Fireman's Fund and Great American, and the E&S coverage is handled mostly by Scottsdale.

"With proper engineering and precautions, it can be a very profitable line, especially if you stay in it long enough to know the good from the bad. It's not something to rush into as a new product line," Price said.

Background Checks

Generally, child-care insurers underwrite policies based on state licensing requirements for property exposures and background checks for employees and volunteers. Background checks aren't completely thorough and accessible, however. The regulation of background checks varies by states, Schirick said. In New York, for example, the director and employees of child-care centers must be fingerprinted and are checked for a criminal history, whereas some states are just now stating specifics on this issue. In Texas, background checks are run through the state's Department of Protective & Regulatory Services, but the process is slow and information gleaned is not specific, said attorney Tom Mighell, of the Dallas law firm Cowles & Thompson. "The agency only lets you know if they get a hit on the name and the waiting period is sometimes months," Mighell said.

The National Child Protection Act of 1993 lets qualified entities request criminal background checks, but the law is voluntary. This means that each state's law enforcement authorities can decide whether to conduct the checks, and child-care organizations can also decide on their own whether to ask for them. Another challenge to background checks is the general lack of an accessible national repository of criminal records. "We have to run a check 50 times until a national program is put into place. So the logical approach is to only run the check in the state where the camp is located," said Norton.

"One of the biggest problems is there is currently no mechanism for nationwide criminal background checks," Mighell said. The national computerized index of criminal record history resides in the National Crime Information Center, but it is restricted to federal, state and local law enforcement officials. U.S. Sen. Joseph R. Biden, D-Del., is sponsoring the National Child Protection Improvement Act that is designed to make it easier to check the background of volunteers and employees who deal with children, the elderly and individuals with disabilities. The act would establish a national center for all background checks. The Biden bill would also require the checks to be turned around in 15 days or less.

Biden also hopes the bill would close the loophole in the current system that allows an employee or volunteer to pass a background check in one state, although he or she may have been convicted of a felony in another. Mighell and Joel Goldberg, a background-check expert with Aurico Reports & Investigations, also warned that criminal background checks only provide an individual's partial profile. Both experts advised that child-care entities dig a little deeper into the backgrounds of both workers and volunteers. Goldberg said it's prudent to conduct an employment and reference check on individuals, asking former employers if they would hire them again and if they followed procedures.

Mighell advises child-care centers to conduct an extensive interview process. "You should include everything that the other side might raise in a negligent hiring claim," Mighell said.

Typical Risks

Licensing and procedures cover the other risk headaches insurers face in the day-care center, nursery-school and camp market. Certain risks, such as dogs and swimming pools, are almost universally excluded from coverage. Others, such as rope courses, previously were considered too risky. "Initially they were perceived as too risky to underwrite, but over time the folks who built them developed standards, and it's become a controlled risk activity," Schirick said.

The most common liability claims for child-care entities are slips and falls. For example, a boy running in the building falls and hits his head on a desk or gets hurt on a piece of playground equipment, Schirick said.

As part of his duties as a broker, Schirick visits camps and does risk-management patrol, inspecting the grounds for lurking hazards. "I look for hazards that have been overlooked or that I'm uncomfortable with. It can involve poor site selection, such as placing an archery range next to a path, or making sure that rules are prominently posted near the waterfront," Schirick said.


Child-care center insurers are faced with new exposures they haven't yet been able to underwrite accurately.

Mold: Insurers worry about their medical and property liability from mold. Thomco President Greg Thompson said property water claims are driving his company's property-loss ratio higher than it has ever been. Scottsdale Insurance is watching the medical exposure because of the public's heightened sensitivity to the subject. "Now when a child has a headache or is nauseous, people want to jump to mold as a reason. Now we're making it critical to inspections," said Gary Tiepelman, senior vice president of excess and surplus lines.

West Nile Virus: Broker Ed Schirick is also making camps aware of the potential for problems from the West Nile virus. Victims can be infected from a mosquito bite. The virus usually causes flu-like symptoms, but can be fatal to individuals who are more than 50 years old or who are immuno-compromised, according to the Centers for Disease Control. Schirick recently presented a seminar to a camping conference for directors and staff about the symptoms and causes of the virus.

Extreme Sports: Because of society's penchant for newer and bigger thrills, insurers are also facing exposures from extreme biking and skateboarding. "We're taking a closer look at extreme sports. Some camps haven't had their policies renewed since they branched into that arena; it hasn't matched our appetite for risk," said Britton L. Glisson, president and chief operating officer of Markel Insurance Co.

Van Pooling: Child-care insurers are also concerned about the recent commotion over the dangers of 15-passenger vans. A report from the National Highway Traffic Safety Administration warns that such vans have a roll-over risk that increases dramatically as the number of occupants increases from fewer than five to more than 10, with single-vehicle crash rates for full vans nearly three times those that were lightly loaded. These vans are frequently used to pick up children after school and transport them to day-care centers or for field trips. "We're currently alerting our customers about the risk and advising them about proper driver training. We're also advising customers to seriously consider purchasing other types of vehicles with better safety records," Glisson said.
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Title Annotation:child molestation cases
Comment:Playing it safe: Allegations of abuse and other risks make it more difficult to underwrite child-care centers. (Underwriting: Property/Casualty).(child molestation cases)
Author:Goch, Lynna
Publication:Best's Review
Geographic Code:1USA
Date:Dec 1, 2002
Previous Article:Here, there and everywhere. (Meetings: Industry Strategies).
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