Spend a few minutes in a room full of toddlers and it’s easy to understand why running a childcare center comes with risks.
At Happy Days School in Garland, toddlers chase balloons across a small classroom as director Delia Merritt reminds them to share and keep their hands – and teeth – to themselves.
“No , ma’am,” Merritt gently scolds the 16-month-old baby who bit her classmate.
No one is hurt, but it’s the kind of thing Merritt and her staff worry about.
“With insurance going up the way it is … as far as the liability numbers, it makes it really, really hard,” Merritt said.
Playground injuries, falls, transportation, and even Texas weather have always made childcare centers expensive to insure. But insurance agent Samantha Phillips said those everyday risks aren’t the reason the industry has reached a tipping point. Phillips specializes in insurance in the childcare industry.
She said that happened as states began giving survivors of childhood sexual abuse more time to seek justice.
In 2019, Texas lawmakers doubled the window for certain childhood sexual-abuse lawsuits from 15 to 30 years.
The change was intended to give survivors more time to bring a case. But Phillips said it also had an unintended consequence for insurers: They could face claims tied to policies written decades earlier.
“What happened as an unanticipated ripple effect that nobody could have predicted was the amount of claims and the amount of old expired insurance policies that ended up paying hundreds of millions of dollars in nuclear verdicts as a result,” Phillips said.
With no way to predict how many more claims could surface, Phillips said some insurers simply stopped covering childcare centers.
“We saw a mass exodus of insurance carriers leave the industry,” Phillips said. “They were just trying to cut their losses.”
There are only two traditional insurance carriers left in Texas. So, providers like Merritt are left with fewer choices and, in some cases, much higher bills.
In 2023, Merritt said Happy Days paid about $30,000 for insurance. The next year, the quote jumped to $40,000, even though the center hasn’t filed a claim in seven years.
As traditional insurers have pulled out of the child-care market, Phillips said more providers are turning to what’s known as surplus-lines insurance.
Surplus insurers typically cover businesses that traditional insurers consider too risky. But Phillips said that coverage generally comes at a higher price and can include more exclusions.
It can also mean piecing together coverage. Instead of getting property, liability and other coverage through one insurer, Phillips said some Texas childcare providers now need six or seven separate policies.
“The surplus market right now is pretty much keeping childcare businesses open and operating,” Phillips said. But, she added, “it comes at a very steep expense.”
Providers ask lawmakers for help
At a Texas House committee hearing in August, Tim Kaminski, president of the Texas Licensed Child Care Association, told lawmakers the cost of insuring his four facilities in Richmond, just southwest of Houston, had tripled.
“Our liability insurance in the last two years has gone from $30,000 a year to $90,000 a year,” Kaminski said. “So overnight, $60,000 of revenue out the door.”
For childcare centers already operating on tight margins, providers say that’s money that has to come from somewhere — like higher tuition, lower staff salaries and cuts to programs.
Lawmakers have tried to provide some relief. Last year, Texas lowered the amount of liability insurance childcare centers are required to carry from $300,000 to $100,000 per incident.
But providers say that hasn’t solved the larger problem. They still have to find insurance they can afford.
At the August hearing, state Rep. Shelley Luther from Sherman suggested putting more responsibility on individual childcare workers when something goes wrong.
“If they know they’re going to personally get in trouble for something, they might act better,” Luther said.
Kaminiski agreed, but Phillips told KERA there is no easy way to stabilize the childcare insurance market.
“How do we fix this without reverting back to closing those lookback windows?” Phillips said. “That’s not gonna happen. So how do we fix this in the new normal now?”
For Merritt, that new normal has already meant making difficult choices. As insurance costs have climbed, she has already taken two buses off the Happy Days policy and reduced other coverage.
“During that time when they’re raising our rates by thousands and thousands and thousands of dollars, it’s like — why?” Merritt said. “We understand increase a little bit, but with no claims … it’s just been a struggle.”
Sujata Dand is KERA’s early childhood education reporter. Got a tip? Email her at sdand@kera.org.
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