Regulated Vs. Unlicensed Centers

Times are fiscally tight in the for-profit world of childcare as well, and insurance is among the first line items that childcare providers think they can drop—and an unregulated childcare facility is able to do so without any state government intervention, says Linda Smith, executive director of the National Association of Child Care Resource & Referral Agencies, in Arlington, Va., which works with more than 600 state and local childcare resource and referral agencies nationwide. 

Indeed, unregulated childcare across the country is putting pressure on the cost of childcare inside the regulated system, Smith says. 

“In order to compete with all the unregulated childcare centers, regulated centers are having to keep their prices down. But that means no investments in equipment and training and all the elements that make a good program,” Smith says. “Many of them also are not buying insurance for that reason. Depending on the state, insurance is most likely not required, so it's up to the individual owner to buy liability. If they're not registered, they aren't doing that.”

In a recent claim in North Carolina, an unlicensed home-based childcare facility did not have insurance when a toddler in its care pulled a hot crockpot onto himself, causing severe burns. The injured child's mother is petitioning the state to require all childcare centers to carry insurance, Smith says. 

“There is a need for these programs to be appropriately insured and licensed and inspected,” she says. “At the end of the day, the parents are the ones who pay the price if you don't have this. When parents understand that providers are not insured and that the liability is all theirs, then I think something might happen [on the legislative front].”

And Smith's advice for producers? “If I were an insurance agent selling homeowners policies I would ask, 'Are you doing any childcare in your home?'” She points out that some unlicensed, home-based childcare facilities may not see themselves as being childcare providers—and not realize the risks they're taking on. “An agent needs to frame the question the right way: 'Are you babysitting a few kids after school every day?'”