BILL ANALYSIS SB 773 Date of Hearing: June 28, 1994 ASSEMBLY COMMITTEE ON INSURANCE Juanita M. McDonald, Chairwoman SB 773 (Hart) - As Introduced: March 3, 1993 SUBJECT Family day care liability insurance. DIGEST Existing law: 1) Requires child day care license applicants to attend an orientation š session. This orientation is conducted prior to licensure by the Department of Social Services. (Insurance Code, Section 1596.845) 2) Prohibits the cancellation of a homeowner's policy solely because the policyholder operates a licensed family day care home at the insured location. (Insurance Code, Section 676.1) This bill: 1) Requires that the orientation for family day care license š applicants include a notification that insurers offering both commercial and homeowner's insurance are required to offer liability insurance for family day car homes. (Health and Safety Code, Section 1596.845) 2) Prohibits the cancellation of a commercial rental insurance policy š solely because the policyholder operates a licensed family day care at the insured location. (Health and Safety Code, Section 1596.845) 3) Mandates that insurers that offer both commercial and homeowner's š insurance policies also offer liability insurance for family day care homes to existing and new policyholders. (Insurance Code, Section 676.15) 4) Requires that insurers prepare a report for the Legislature on or š before July 1, 1996, detailing the status of the family day care home insurance lines. (Insurance Code, Section 676.15) FISCAL EFFECT Unknown. COMMENTS - continued - SB 773 Page 1 SB 773 1) The Children's Advocacy Institute, the sponsor of this bill, š contends that there is a need for greater availability and affordability of liability insurance for family day care homes. They note that approximately 200,000 out of 300,000 children who are in day care are uncovered by liability insurance of any kind. They contend that this lack of coverage puts children in a highly exposed position. They also complain of arbitrary denial of coverage by some of the š firms that offer homeowner's policies. 2) In 1985 the Legislature authorized the creation of Cal-Care because of the extensive complaints regarding the lack of availability of child care liability insurance. Cal-Care is a voluntary market- assistance plan through which day care liability coverage is offered by member insurers who participate on a voluntary basis. It is currently administered by the Independent Insurance Agents and Brokers of California in accordance with an agreement with the Insurance Commissioner. 3) The sponsor argues that Cal-Care is not a viable alternative because: a) Currently, Cal-Care is open only periodically: mid-day on Wednesday, and "open" means access to an answering machine; and b) Historically, Cal-Care policy proposals have been offered at inflated prices. Attorneys who provide legal representation for day care providers and parents, report that Cal-Care policies are quoted at three to six times the normal market rate. The sponsor notes that the Department of Insurance's upcoming rate hearings may resolve this problem (since the Department must approve rate decreases as well as rate increases). However, some review of Cal-Care rates may be appropriate, to determine whether the quotes given through the Market Assistance Program (MAP) are significantly above usual market rates. c) There are documented cases of Cal-Care policy proposals that contain underwriting standards so arbitrary as to make the policies useless. d) The lack of availability of insurance for family day care (FDC) centers which are licensed for up to six children, but the problem is even more aggravated for large FDC centers which are licensed for up to 12 children. e) Currently there is one dominant insurance company which specializes in insuring FDC centers; that means that continued availability of liability coverage for FDC centers depends on the continued solvency of that company; and f) That carriers participating in Cal-Care should not be permitted to discriminate against large FDC centers; there must be a reasonable number of companies selling to large as well as to small FDC centers. - continued - SB 773 Page 2 SB 773 4) The Personal Insurance Federation, which opposes the bill, contends that availability is not a problem. They cite a 1992 Department of Insurance study that showed 20 insurers that offered policies for large family day care homes. 5) According to the sponsor, a recent survey conducted by them on a list of companies that DCI claims sell liability insurance to large Family Day Care homes in California, resulted in a finding that those companies do not in fact make coverage available to FDC's of 6-12 children. 6) The opponents contend that day care home insurance is affordable. š They note that State Farm Insurance offers day care home liability of $100,000 for six children at a rate of $130 per year. 7) Insurers strongly oppose the provision which would restrict the š underwriting criteria which they can apply in issuing family day care policies. They believe that such restrictions make it impossible to underwrite any insurance risk. 8) The Personal Insurance Federation has expressed a willingness to work with the proponents in order to increase both accessibility and effectiveness of Cal-Care. They contend that those problems should be resolved before mandatory coverage is considered. 9) The American Insurance Association contends that many private š insurers as well as the Cal-Care market-assistance plan now serve the family day-care market. They note that Department of Insurance figures show two trends: increasing market penetration and decreasing premiums. Those trends, they maintain indicate a functioning insurance market. 10) At the Committee hearing the Author intends to offer amendments to š do the following: a) Repeal the existing sunset date of January 1, 1995, for a period of one year, governing the authority of the Department of Insurance to enact a Market Assistance Plan (MAP), known as CAL CARE; b) Provide family day care providers with a statewide 800 phone number answered by a person and not an answering machine during normal hours Monday through Friday and times which are accessible to the day care providers; c) Make available a market of regionally based insurance company agents or brokers that are knowledgeable about the MAP and familiar with child care liability insurance products; d) Provide a market that has at least five or more companies actively offering and selling liability policies to child care providers licensed to care for up to or more than six (6) children; - continued - SB 773 Page 3 SB 773 e) Provide underwriting standards in policies offered under the MAP program that focus on the health and safety criteria governing the child care provider's license, and can include additional underwriting standards that are not arbitrary; f) Ensure policy pricing under the MAP program is equivalent to that found in the normal insurance market available to child care providers; and g) Allows the MAP authority to sunset January 1, 1996 and Section 676.15, which mandates insurers to sell FDC coverage, to go into effect if the Insurance Commissioner determines that any of the following conditions have not been met with respect to the MAP program. SPONSOR: Children's Advocacy Institute SUPPORT: California Women's Law Center Child Care Law Center State of California Child Development Programs Advisory Committee City of Los Angeles Mayor's Advisory Committee on Child Care California Federation of Family Day Care Associations City of Sunnyvale Gold Country Association for the Education of Young Children The Human Response Network Community Child Care Coordinating Council of Alameda County California Association for the Education of the Young Child Wall's Child Care OPPOSITION: Alliance of American Insurers American Insurance Association Association of California Insurance Companies Personal Insurance Federation of California State Farm Insurance Company - continued - SB 773 Page 4