Child care property coverages have expanded significantly in recent years. For starters, most policies are now written on a replacement cost basis versus actual cash value. Almost all property forms now include some type of property enhancement, providing a number of broadened coverages. Because listing and discussing all these coverages would turn this article into a book, let's discuss those coverages that would appear to be the most important.

Time element coverages are easily neglected except when there is a serious property claim that shuts down the business. More and more carriers are enhancing their business income and extra expense limits and coverages. Outside of the coastal areas, it is now possible to find actual loss sustained (ALS) coverage for your insured. Even markets that do not offer ALS have increased their automatic business income and extra expense limits to as much as $100,000.

In coastal areas with significant hurricane exposure, carriers often offer lower limits compared with the rest of the country. But no matter where your insureds are located, be sure they are further protected with utility service failure-business income/extra expense coverage. It is very difficult to explain to an insured why they have an uncovered business income loss when the center was unable to open for business because the utility service incurred a direct physical loss but the insured did not.

Other important property and crime coverages also should be addressed in the property form. With local governments passing more building ordinances, ordinance of law coverage is more important than ever. Child care property extension coverages offer limits of insurance which may vary from $100,000 to as much as $350,000 in protection. Employee dishonesty and money and securities limits have been increasing, and although some markets do not automatically offer limits for this in their property extension, others offer up to $50,000.

Another key coverage is sewer and drain back-up, now available on certain policies at a $50,000 limit. Other carriers may offer a lower limit but broaden coverage to include any water damage. Automatic computer hardware and software limits have been increasing and some forms automatically include a limit as high as $100,000.

This year's tornados and related storm events have emphasized the importance of covering damage not only to buildings but also to outdoor property, landscaping, fences and playground equipment. Typical limits offered for these perils start with a limit of $25,000, but some forms offer up to $50,000. If the property extension limit is not adequate, be sure to schedule a specific limit for each outdoor item. Just as important, some forms include wind related losses and others do not.

The rating base for the largest premium coverage on most child care accounts, general liability, hinges on the number of children in the facility. With downward pressures on premiums, both agents and markets have become more flexible in defining this number. In the last hard market, the most common measures were either licensed capacity or the total number of children enrolled in the center, regardless of attendance. In today's market, the measurement is more likely to be full-time equivalency or the average daily attendance. Many markets also allow children enrolled in an after-school program to be counted as one-half of a person. The general liability rating base also may be affected by state regulations. Using licensed capacity in Florida, for example, can result in a significant overstatement as the state requires the licensed capacity be calculated strictly according to square footage, even if there is no intent to ever operate at that capacity.

Related: Read Carolyn Tormey's “The challenge of child care center coverage”.

Regarding general liability coverages, a number of markets now offer sub-limits for EPLI, an important coverage in an environment where employees are more likely to seek redress from their employers. Another new coverage is protection for cyber liability as computers become more prominent in the child care world. Further, coverages that are key to any comprehensive child care GL policy, such as corporal punishment (ideally at policy limits), medical payments for the children and employees as additional insureds exist.

Professional liability coverage often is offered in a variety of forms on child care policies. While there are those who argue that most child care centers do not have a significant professional liability exposure, many providers do employ licensed teachers and may provide pre-K education to their children. Many agents, therefore, like to see the coverage included.

Sexual and physical abuse liability is a must on any child care policy. Losses, although infrequent, tend to be severe. Ideally, sexual and physical abuse liability should have its own limit of insurance. Is the limit equal to the general liability limit or is it a smaller sub-limit? Other considerations:

1. Is the form claims made instead of occurrence?
2. Are defense costs within limit or outside the limit, or, is there separate limit of insurance for defense costs?
3. Are employees covered only at a sub-limit for defense? Is sexual abuse protection included in the umbrella liability coverage?

Many markets have substantially improved their terms in recent years so some forms are much broader than others.

A number of good reasons exist for choosing a child care market that has the ability to provide owned, hired and non-owned automobile coverage in their package. Historically, the lower loss ratios on automobile coverages have helped to offset the higher loss ratios on the general liability. In addition, claims in and around an automobile can create a gray area between the general liability and the automobile liability. This is not an issue when both coverages are with the same carrier. Some newer automobile coverages offered by child care markets include rental reimbursement, blanket additional Insureds and elimination of the deductible for certain glass losses.

A great tool for the agent to use in managing the general liability claims of a center is a student accident policy. Children frequently get hurt on the playground and if all incidents are reported to the package carrier, the carrier may perceive these incidents as excessive loss frequency and take adverse action. A student accident policy, which averages $4 per child, can be passed onto the customer as an enrollment fee and can allow small injuries to children to be paid quickly and efficiently without requiring handling by the package carrier. It is preferable to provide primary student accident coverage versus excess so there is no ambiguity regarding claims payments.

Related: Read the article “Start a ripple effect with child care coverage” by Christi Hatcher.

Workers' compensation coverages are mandatory where required by the state and—depending on the locale—may be expensive. For years, this coverage has been written in the surcharged state pools due to an anomaly in the class code. As schools and child care centers were included in the same class code, the child care rate was depressed by the overall better loss experience of the schools. In recent years, child care centers have been classified separately and rates have increased to the point that more private carriers are willing to write the coverage.

There are some unique characteristics about child care centers that affect how an agent should market insurance to them. Most child care centers are run and managed by women. Most women, whether in insurance or any other profession, have had experience with child care providers and at some level understand the business. Women agents, therefore, can be very effective at selling to child care centers.

Another point is that because child care center owners network effectively within the business, an agency can obtain a following through referrals. Of course, lists are available from a variety of sources, including the state licensing authorities. Finally, most agents find it beneficial to become involved in the national and state child care associations, including the National Child Care Assn., National Assn. for the Education of Young Children and the National Assn. of Child Care Professionals.

The biggest recent change in selling child care insurance, however, is how price sensitive this market is in light of the challenging economic circumstances. Besides finding a competitive market, we recommend that you find inexpensive premium financing or payment schedules which can help the center manage its cash flow while still buying quality coverage.