Insuring your Day Nursery
Arranging insurance for your day nursery might not be the first thing you consider when planning your new business. However, if you take care to get the right cover from the start, then you could save yourself a lot of headaches later on.
There are many commercial insurance policies on the market which would do an adequate job but you need more than that. Does the policy cover you for sexual abuse? Does it cover you for the administration of drugs, for bouncy castles, for outings? Running a day nursery is a specialised business and you need a specialised policy to protect you.
So, the first thing is to find a specialist insurance broker who understands childcare and will take the time to go through the policy with you and explain each cover in detail.
When talking to a broker, you will need to understand the risks that your business faces. Broadly speaking there are three – liability, material damage and legal.
Over 70% of all claims made against nursery owners in the past 10 years have been compensation claims. If a child, an employee or a visiting member of the public has an accident on your premises as a result of your negligence then you will have to pay compensation and legal costs. Consider these real life examples – a cupboard falls off the wall and severs an employee’s ear; a child is scalded by a hot cup of coffee; a parent stumbles on a concealed hole in the lawn and badly sprains her ankle. These incidents have all led to successful compensation claims against nurseries in the last few years.
Potentially, payouts can be very large – there has been a £3m settlement in the last 10 years, though usually settlements are much smaller, in the region for £5,000 to £20,000.
It is also worth remembering that your liability does, potentially, extend way into the future. A child effectively has until their 21st birthday to lodge a claim against you and, in certain circumstances involving mental impairment, they can actually claim at any point in their lives.
So the first thing to ensure is that any insurance policy has an adequate Public and Employers Liability section.
The second major threat to your business comes from what are called “material damage” risks. Typically, this involves incidents such as fire, flood, theft, storm, etc. These eventualities are covered under the Property Damage and Loss of Revenue (sometimes called Business Interruption) sections of the policy. Policies are usually written on a defined perils basis (the policy will actually specify the perils that are covered eg. Fire, theft, lightning, etc) or on an All Risks basis (the policy will cover anything unless it is specifically excluded). Either type of policy is suitable for your purposes and they operate in a similar fashion to a standard household buildings and contents policy. You have a fire, you make a claim, the insurance company assess the claim and then a settlement is agreed between you.
Perhaps less familiar will be Loss of Revenue. This is extremely important. In the event that your nursery has to close down for a period of time – maybe following a flood – then the Loss of Revenue section will pay out the amount of revenue you would normally have expected to receive but were unable to due to the closure (less any expenses you haven’t incurred, of course.) It is vital to have this cover. Consider for a moment the amount of gross revenue that you might have to rebate or not collect if one of you rooms was out of action and you were unable to accommodate the children elsewhere. The numbers can quickly become very large.
Sometimes, businesses are tempted to skimp on the material damage cover. For instance, they might only insure for £20,000 of contents when actually they have £40,000. This is very unwise. Although the premium will be lower, you will be severely out of pocket in the event of a claim. In the above example, any insurance company would consider you to be underinsured and, therefore, responsible for half of your property. If you tried to make a claim for £5,000, the most the insurance company would pay out would be £2,500. So, it is essential that you are fully covered for your Contents, the rebuilding cost of your building and the full amount of your anticipated revenue.
Legal Expenses covers you for a range of situations where you have become entangled with the law. Industrial Tribunals, Contract Disputes, Tax Investigations and Legal Defence in certain criminal prosecutions are the type of covers typically available under a Legal Expenses section. The insurance will pay for the legal expenses and, in certain circumstances, the compensation payments you might become liable to pay. There should also be 24 hours a day, 365 days a year Helpline support available.
This is a very brief overview of the type of insurance you will need to consider. For more information, contact a specialist insurance broker such as Morton Michel to learn more.