How to create a risk management plan for daycare centers

Editorial headshot of Kate Sortino
If you're looking to start a daycare center, it's essential to have the right risk management plan and business insurance in place to protect your investment.
Child playing with toys in a daycare center.

Owners of child daycare centers often have to adhere to strict regulatory guidelines designed to protect the health and safety of the children who attend these facilities.

Before you open your own daycare center, it's important to consider the types of risks associated with keeping children safe and the measures you can take to mitigate those risks.

Key elements of a daycare risk management plan

A quality risk management plan will protect your childcare providers, your investment, and (most importantly) the children at your daycare facility. Here are the three key steps you need to create your daycare risk management plan.

1. Identify and assess common risks

Every small business has risks, and childcare facilities are no exception. Keeping one child safe and protected is a big task, but many childcare facilities are responsible for dozens of children at a time.

Examples of childcare facility risks include:

  • Injuries, accidents, and allergic reactions
  • Child abuse and neglect
  • Building and facilities safety
  • Privacy laws and child protections
  • Public health and medical concerns

While it's impossible to completely eliminate every possible risk associated with running an early childhood education center, you can reasonably assess for the most likely problems. And, of course, child safety should always be the number one priority for any daycare center.

Doing daily/weekly walkthroughs of your childcare center to identify potential hazards is a great way to resolve issues before they become dangerous (and costly) problems.

Each state has different operational mandates. In California, for example, to obtain a daycare license, small business owners must attend an orientation, familiarize themselves with all local laws and regulations, and submit an application packet that must be approved before they can operate.

Similarly, in Texas, those who want to open a childcare center must also attend a pre-application course and submit a packet after reviewing and adhering to all of the guidelines and requirements before applying to the childcare license office.

Some of the most common state requirements include:

Licenses and permits

Licenses for running daycare centers are regulated at the state level. Requirements and licensing policies vary from one state to another, and many are highly specialized. Depending on where you live, you may have to have age-specific licenses for the children you serve.

Be diligent about securing the licenses you need; without proper paperwork, you likely won’t be able to obtain liability insurance for your daycare center.

Staffing guidelines

Most states require daycare center staff members to have specialized training to ensure child safety and wellness. Many states also limit the ratio of children to staff members, meaning that you’ll have to coordinate your employee list with the number of children who enroll in your center and hire additional employees when you reach capacity.

As with licensing requirements, staffing guidelines are a critical component that insurance companies analyze when writing coverage policies for daycare centers. Having the appropriate amount of childcare providers also reduces operational risks and improves the well-being of the children.

Building safety

Depending on where you plan to operate your daycare center, you may have to choose a building with specific safety features and pay for additional safety items, such as outlet covers, child safety locks for cabinets, and non-toxic decorating materials.

In addition to housing your daycare in a building that meets specific safety standards, you may be required to purchase furniture designed for the age group you plan to serve. This can potentially carry additional expenses if you plan to operate your childcare center from your home.

Regular on-site risk assessments and audits are essential to ensure that your facilities don’t pose safety risks for the young children in your care.

Health and sickness policies

Preventing the spread of sickness in daycare centers is a key risk management consideration. Anyone who plans to run a daycare center should have policies in place for when parents should keep their children home, how instructors should handle illness or injury, and how employees will keep the daycare facility clean. 

Even simple things like hand washing requirements and regular play area cleanings should be implemented to avoid potential risks of illness spreading within the childcare program.

Crisis management

Child daycare centers should establish a plan for managing and mitigating various potential hazards and crisis situations, including fires, natural disasters, power failure, and injury. Educating staff about these plans will minimize the risk of harm in the event of a crisis.

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2. Secure the right insurance for your childcare business

Whether you choose to run a daycare center as a for-profit or not-for-profit enterprise, you can protect your business by investing in appropriate business insurance policies. Typically, daycare center owners can expect to purchase a range of insurance policies.

These policies protect the children and employees as well as help mitigate some of the potential financial risks associated with running your early childhood center.

General liability insurance

One of the most common small business policies, general liability insurance shields you against personal injuries and damage to the property of third parties (including the children you serve).

Commercial property insurance

Commercial property insurance provides protection for your business premises and the toys, tools, and equipment you use to manage your child care program.  

Business owner's policy (BOP)

For those businesses that qualify, a business owner's policy (BOP) is a great bundle of general liability and commercial property insurance.

Professional liability insurance

Also called errors and omissions (E&O) insurance, professional liability insurance protects you against charges that your daycare center's curriculum isn’t adequate or is harming children. Some policies provide full coverage of the legal cost of defending yourself against such charges.

Workers' compensation insurance

Working with kids can be fun, but injuries happen. A workers' compensation insurance policy will protect your employees should they get hurt on the job. Workers' comp insurance is often a state requirement for businesses with employees.

Commercial auto insurance

Commercial auto insurance is a must if you have company vehicles or transport children. This policy protects business equipment, employees, and passengers and is often a state requirement if you have business-owned vehicles.

Specialized abuse coverage

This daycare-specific coverage protects you and your staff against allegations that you mistreated the children in your care.

Directors & officers (D&O) insurance

If your childcare center has a board of directors, D&O insurance will protect them in the event that their decision-making is questioned.

3. Monitor and reassess risk management practices

Having a solid system in place to assess, manage, and respond to risk is crucial for avoiding the possible financial losses associated with running a daycare.

Risk management isn't a one-time thing; it should be regularly evaluated and reassessed. As your business grows, your risk management plan should evolve and adapt to your daycare center's changing needs.

Many childcare businesses have a specific point person to act as the safety officer and do regular audits. These audits can include things like:

  • Checking the first aid kits are stocked
  • Ensuring the children have updated phone numbers and contact information
  • Auditing the drop-off and pick-up process

It's also crucial that there is a point person for managing a post-incident review, such as when there's an injury or power outage. If someone isn't assigned to this task, it may fall through the cracks and allow for repeat incidents.

Ensure you provide regular, ongoing trainings for staff on safety as well as updates to policies and procedures. Risk management is most successful when all employees feel empowered to suggest changes and improvements to safety processes. 

Manage childcare center business risks with insurance from trusted carriers

Complete Insureon’s easy online application today to compare insurance quotes from top-rated U.S. carriers. Once you find the right policy for your small business, you can begin coverage in less than 24 hours.

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Kate Sortino, Content Specialist

Kate is passionate about all things related to content, marketing, and SEO. She enjoys taking complicated topics and making them delightfully readable. Kate has a background in software content marketing and has professionally written about many topics, including finance, SEO, and mental health. Before becoming a full-time writer, Kate worked in social services and healthcare. When Kate’s not sitting in front of a computer, she’s typically exploring the outdoors with her husband and puppy.

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