Roslyn Ferraro, who supervises 12 children in her Santa Monica home, said she is "very, very nervous" because her family day-care business has operated without liability insurance since July 1. After paying $130 for coverage last year, Ferraro said she cannot afford to pay the new $1,165-premium.
Liz Harter, who runs a day-care business out of her Culver City home, said she paid $127 for liability insurance this year but will have to spend $655 for the same coverage when her policy expires in September. "I'm going to take a complete loss on this," she said.
"I've been a family day-care provider for more than 10 years, and I've never had a claim," said Ann Ceely, who provides day care for six children in her Mar Vista home. But Ceely said she was shocked upon learning her new premium would be $505--an increase of $408 in one year.
"For my business, it means I won't be carrying insurance this year," she said.
Day-care providers say the higher rates have forced some to quit the business and discouraged others from starting up. They fear that more providers will join the ranks of unlicensed or "underground" day-care operators who are not fingerprinted, screened for criminal records or checked for tuberculosis. They also predict that many low-income parents will be forced to remove their children from day-care facilities or turn to unlicensed homes when costs are passed on to them. Operators blame the explosive increases in premium rates on the reaction of the insurance industry to a few publicized molestation cases in child-care facilities, including the McMartin Pre-School in Manhattan Beach. The higher rates are unfair because only 1% of reported child abuse occurs at child care and nursery schools, operators said.
"I believe that the McMartin case as well as others have created an atmosphere that makes it difficult to obtain reasonable insurance," said Don Meyers, co-owner of A Child's Place Too day-care center in Culver City. "The liabilities are tremendous."
But insurance industry representatives said they need the increases to stay abreast of the rising number of claims and to guard against the probability of more lawsuits because of the publicity from the McMartin case and sexual abuse cases nationwide.
"The insurance industry is not picking on the day-care community," said Joseph S. Silverman, executive vice president of BMF Marketing Services of Sherman Oaks, a major broker for day-care liability insurance in California.
"The publicity has put them into a high-risk class," Silverman said. "Our society tends to dwell on the single apple ruining the barrel."
Premiums typically have increased more than 300% since spring. Some have risen by as much as 600%.
In West Los Angeles, for example, Thomasine Baker, owner of Monarch Montessori School, said she can find nothing comparable to the $1,500-premium the school paid in 1984. After making more than 30 calls to insurance companies this month, Baker said, "The cheapest we could find was $9,000."
"The long-term impact will be less child care," said Mary Hammer of Redondo Beach, president of the California Federation of Family Day Care Assns. Inc. "I think the real victims of it are the children."
On the Westside, about 7,100 children attend an estimated 242 child-care homes and 147 day centers and preschools that have been licensed by the state Department of Social Services, said Barbara Niles of Connections for Children, a nonprofit child-care referral agency for the Westside and South Bay.
The state reported that there are 33,700 licensed family day-care homes and 7,000 day-care centers in California. The number of day-care facilities has grown 62% in the past five years, and analysts predict that the demand for day care will double in the next decade.
Family day-care providers interviewed on the Westside said their carrier, Mission Insurance Co. of Los Angeles, would not renew their policies this year. They turned to the broker, which found another carrier, University Security Insurance Co. of Glendale.
Hammer, who runs a child-care home in Redondo Beach, said she paid Mission Insurance a $165 premium last year for coverage of $500,000 liability, $20,000 accident-medical, $5,000 auto and $5,000 personal property.
This year she is paying $655 to University Security Insurance. The new rate is typical for home day-care businesses throughout the Los Angeles area, she said.
Harter, who takes care of four infants 50 hours a week, said the new $655-premium for her Culver City day-care operation will hurt because her profit last year was only $2,500. The $500 increase represents 20% of that profit, she said.
Average Claim $16,000
Silverman of BMF said higher rates are justified according to a large statistical base the company uses to evaluate risks. But he said some insurers base their rate increases on expectations of future claims instead of hard figures. BMF has seen an increase of 250% to 300% in the value of claims in two years, and the average claim against a family day-care home now is $16,000, Silverman said.
But Hammer said providers have yet to see evidence from the insurance industry that supports the sharp increase in premiums.
"They have not been able to give us any data to support those statements that we are a high risk, that we put a lot of claims in," Hammer said.
Providers who offer day care in their homes are required by state law to buy $300,000 liability insurance or bonds or to have parents sign affidavits stating they understand that the home is not insured. Preschools and day care centers outside the private home are not required by state law to carry a liability policy but most do so.
Day-care providers are lobbying for state legislation that would provide less expensive liability insurance by bringing insurance companies together in a risk-sharing plan. Los Angeles Mayor Tom Bradley's Child Care Advisory Committee supports the legislation.