Business interruption is a key consideration for any childcare operator, providing protection for the loss of income and the increased costs of operating your business in the event of a material damage claim arising from perils such as flood or fire. The operation of the business in the event of a property damage claim is of particular importance for the early learning industry where service approval is required by the National Quality Framework (NQF) for each childcare operator.
The childrens’ services regulatory regime was reformed in 2020 to ensure alignment with the NQF. The intention of this alignment was to simplify licensing arrangements and ensure consistency by setting a national benchmark for childcare standards. The NQF sets forth the requirements for service approval for kindergartens, long day care, family day care, and other education or care based services. The Australian Children’s Education and Care Quality Authority (ACECQA) then works with state and territory governments to support, promote and implement the NQF.
Under the framework, service approval for childcare providers is tied to their specific location. As such childcare operators must keep this front of mind when considering the implications of being unable to trade at their approved service location .
It is crucial for childcare operators to fully understand their coverage options under an industrial special risk (ISR) policy or business interruption policy.
Gross revenue / gross profit
Many childcare operators opt for a level of insurance for business interruption based on their existing revenue and expenses. However many of the items included in such a figure can never be recovered under a business interruption policy meaning policyholders are paying a premium above and beyond that which is required. In the event of claim, variable expenses such as direct costs (nappies, food, excursions etc) are not essential when a major loss occurs and should be excluded when considering the level of indemnity required.
Payroll
Staffing issues including the ability to find appropriate staff remain a common issue across the industry. Childcare facilities are required to maintain specific child to staff ratios in addition to meeting the professional qualification requirements for early childhood education and care (ECEC) – both are important factors which need to be considered when completing business interruption calculations.
Ensuring that your business interruption policy will cover your payroll costs during a period of shutdown can help prevent a large loss and ensure you do not lose valuable staff.
If your childcare centre operates across multiple locations, premium savings are available should your staff be able to relocate to another location temporarily, helping to minimise your overall claims quantum.
Infectious or contagious diseases
The emergence of a human infectious or contagious disease, or the discovery of an organism that may cause such a disease, poses a significant risk to business operations. In many cases, such situations can lead to temporary shutdowns. Many insurance providers often exclude coverage for business interruption losses stemming from these events. This means standard business interruption policies may not provide protection against financial losses caused by infectious disease outbreaks.
Prevention of access and remote premises of public utilities
Two important extensions provided under a typical ISR Policy wording are:
- Premises in the vicinity (prevention of access)
- Remote premises of public utilities.
These extensions provide business interruption cover in the event that access to the premises is prevented or, there is a failure to provide critical services, such as water or electricity at the premises by the services provider. Neither require material damage to occur at the insured premises before they will respond to any claim.
Typically, business interruption claims are triggered following an insured material damage event however, the above extensions ensure that should there be a flood or bush fire in the area, which does not lead to direct damage to the insured premises, you are able to claim for any interruption to gross profit or revenue to your childcare business.
Further information regarding prevention of access and remote premises can be found here.
Proactive steps to reduce childcare interruption costs
Relocating staff and children following a loss can be done by seeking temporary service at a separate location. Childcare operators will need to inform their state or territory regulatory authority (e.g., the Victorian Regulatory Authority) about their intent to temporarily close or relocate their approved service. Childcare operators can seek guidance on specific requirements and procedures from their state or territory regulatory authority or ACECQA .
How Bellrock can assist your early learning centre
Understanding the complex needs of childcare operators enables Bellrock to provide appropriate risk advice and craft tailored business interruption policies which have assisted our clients to recover financially and limit the impacts of unforeseen disruptions to their business operations.
By applying our unique methodology, including the use of our third-party expert panel, Bellrock has successfully negotiated with insurers to deliver bespoke wordings tailored specially for childcare, including the waiver of underinsurance clauses which may impact any insurance settlement.
Don’t leave your childcare centre’s financial stability to chance, contact us today to learn how our Risk Advisors can work with you to enhance risk management for your childcare operation.
