Rising Liability Insurance Costs Pose an “Existential Threat” to Child Care Providers

Anyone who owns a car or house can tell you that insurance costs are up. Some homeowners have seen their premiums increase by 30 percent or higher due to more frequent natural disasters, inflation, and labor shortages in the construction industry. The cost of auto insurance is rising at the fastest pace since the 1970s, largely due to the way the industry is regulated.

A new survey from the National Association for the Education of Young Children (NAEYC) makes clear that the costs of liability insurance for child care providers are also rapidly increasing and doing so at a time when many are unable to afford it. “This is something that poses an existential threat to providers, especially as they're navigating the loss of a significant amount of federal funding that helped sustain and support them during the pandemic. It's one more straw on the camel’s back,” says Daniel Hains, managing director of policy and professional development at NAEYC.

Liability insurance is necessary for child care providers to protect themselves and the families they serve from significant financial losses that could result from lawsuits filed against them due to injuries and accidents that can happen with groups of young children learning and playing together. The insurance is actually mandatory for licensed centers in 30 states and 21 of those states also require it for certain types of licensed family child care homes.

After hearing frequently from providers about the rising costs of liability insurance, NAEYC surveyed 1,173 early educators in 49 states and DC about the issue. The survey results highlight how serious a financial burden obtaining and affording insurance has become for providers across the nation. For example, 80 percent of respondents shared that their liability insurance costs have increased over the last year, most frequently by up to $1,999. Additionally, 62 percent of the educators reported difficulty finding or affording liability insurance. One-third of respondents noted that they had been denied coverage or received a non-renewal notification on a current policy in the past year, frequently because the insurance company had decided to no longer insure child care programs. And the survey illustrates just how high the stakes are, with 65 percent of providers saying they would have to shut down their program if unable to obtain coverage.

Samantha Phillips, a child care insurance specialist who works closely with providers, started to notice a shift in the industry over the past year. “2023 was when I started noticing all the red flags, seeing significant premium increases from anywhere from 75 percent to 150 percent of their prior premium,” says Phillips.

While it would be easy to place the blame solely on the insurance industry for the price hikes, the reality is that a history of high payouts for claims often leads insurers to decide to protect themselves by leaving the market. “It's a very risky industry and the claim payouts being as costly as they tend to be, they have no choice but to increase premiums in an effort to try and stay profitable or they are also going to be exiting the industry. The payouts can easily be one million dollars plus, especially if it's an abuse allegation, negligence, physical abuse, anything like that,” says Phillips. She shared some real-life examples, such as an $863,000 payout when a child’s mother attended a party and slipped and fell on bubbles from a bubble machine, as well as a $1.5 million payout due to a playground accident in which a child choked while playing on a slide.

In some instances, efforts to deregulate the child care industry by increasing the number of children providers can supervise at one time or allowing minors to work unsupervised in some settings can lead to the unintended consequence of higher liability insurance costs. “The insurance industry understands that when you have children watching children or more children in a group than a provider can safely and effectively care for, that increases the risk of accidents happening and increases the risk of a suit that will require the policy to pay out,” says Hains.

As more attention is being paid to the issue of high liability insurance costs for providers, state lawmakers are starting to consider how to alleviate the issue. “I would not say there's a silver bullet. We're optimistic that the more states that are highlighting this issue and the more that policymakers are paying attention to this issue, that those successful solutions will begin to emerge and develop across states in ways that can be replicated,” says Hains.

In March, a Nebraska state senator introduced a resolution that proposed an interim study to examine the affordability of liability insurance for providers and calls for legislative recommendations to improve access and affordability. In June, Vermont issued guidance notifying district superintendents of steps to take if providers of the state pre-K program are unable to obtain the desired levels of coverage.

In Montana, where advocates have witnessed firsthand the struggles of providers to obtain and afford insurance, lawmakers have recently been grappling with possible solutions to the issue. One strategy that has been discussed are reinsurance pools that could allow for more affordable insurance options, though there are concerns about the high upfront costs of establishing such a pool. State lawmakers recently tabled an effort to work on legislation surrounding the reinsurance idea, but advocates hope such efforts will continue in the future. “It’s going to continue being an issue for our system,” says Alex DuBois, policy & engagement manager at Zero to Five Montana. “It’s definitely not going away,” she added.