State Inquiry : Day-Care Insurance Ills Aired

Holding its first-ever public hearing on whether insurance rates are excessive, state Insurance Department officials Wednesday were given widely conflicting assessments on whether rapidly rising charges for insuring child day-care facilities in California are justified.

Insurance company representatives told the six-hour Los Angeles hearing, headed by Gov. George Deukmejian’s newly designated insurance commissioner, Roxani Gillespie, that mounting claims against insurers mandated the recent sharp increases.

Six companies selling day-care insurance had been subpoenaed to appear at the hearing, and all but one said they were losing money on such business. Some said they were losing as much as three times what they took in.

However, Mayor Tom Bradley told the hearing that he believes the companies have not justified their rate increases with convincing statistics, and he called for a rollback of premiums to 1984 levels, as well as creation of a mandatory insurance pool, so that every child-care facility would be assured adequate coverage.

Questions for Mayor

When Gillespie heard the testimony of Bradley, the Democratic candidate for governor, she asked whether he would be prepared to subsidize insurance costs in day care and, if so, who he thought should pay the subsidy.

The mayor answered vaguely, saying that would have to be determined. He insisted that “drastic and dramatic action should be taken” to guarantee that the day-care industry is adequately covered.

As one example of sharply increasing day-care rates, Bradley cited 32 YMCAs in Orange County. Until recently, he said, they had paid, altogether, $2,800 for liability coverage. Now, however, even with lower claim limits, they must pay more than $80,000.

Later, Mary Hammer of Redondo Beach, who operates a center in her home for six youngsters, told how her rates had jumped. Hammer said she had paid $46 for liability coverage in 1981, $86 in 1982, $105 in 1983, $110 in 1984, $270 for reduced coverage in 1985 and $633 for reduced coverage this year.

Private Homes

The hearing at the downtown State Building was exclusively devoted to the situation involving day-care centers, including those in private homes. Gillespie indicated that later hearings will be held concerning other businesses that have been affected by a lack of availability or high cost of liability insurance.

Joining Insurance Department officials in conducting the hearing were members of a legislative child-care liability task force.

Altogether, the officials were told, about 374,000 California youngsters are in child-care facilities. Bradley said 70% of these are going to uninsured facilities, because liability rates are so high.

However, William Storey, president of the currently insolvent Mission Insurance Co., once a leading day-care insurer, said offering such insurance is not a good financial proposition for companies such as his.

Storey testified that in a two-year period from 1983 to 1985, despite four separate rate increases, his company took a heavy loss on the 6,500 day-care policies it wrote. He said Mission Insurance had charged a total of $807,000 in premiums but had already paid out $2.18 million in losses and projects ultimate losses on the policies it wrote at $3.98 million.

Joseph S. Silverman, president of BMF Marketing Insurance Services Inc., testified that in the period 1980-85, his company’s average premium was $83.17, while its average payout per premium was $281.20.

As the hearing began, there was some dispute over how well a day-care market assistance plan, known as Cal Care and offered under the auspices of the Department of Insurance beginning last fall, has worked out.

Industry representatives distributed a paper indicating that of 473 applicants under the plan, 323 had gotten at least one insurance quote from the companies volunteering to participate in the plan and that 84 policies had been written.

“This figure is low because of a time lag in reporting,” the industry statement said.

However, Bradley suggested that Cal Care is not working, because many day-care centers cannot afford the rates being quoted.

Gillespie told the mayor: “We agree with you that Cal Care is not the answer.”

Gillespie said that after the hearings are over, she and other officials will prepare their conclusions and submit recommendations to the Legislature.