Independent Women Joins Coalition Letter Regarding America’s Uninsurable and Unavailable Foster Care System

Key Points

• Not-for-profit foster care agencies are being forced to close due to a lack of liability insurance.
• In some states, providers cannot find a single insurer willing to offer a liability insurance policy, regardless of rates or coverage limitations.
• Insurance costs for foster care agencies are outpacing the inflation rate due to an insurance market failure fueled by bad public policy and colossal lawsuits.
• The foster care system is at risk from these rapid closures, and if they continue, children will be shifted into more restrictive settings.

In the US, there are nearly 400,000 foster children in state custody—mostly as a result of abuse or neglect by their caregivers.¹ A rapidly unfolding liability insurance disaster is plaguing the already overstretched child welfare system and putting these children at risk.

While some state or local governments contract directly with foster parents to provide care to children in their custody, other jurisdictions contract with private foster care agencies to vet potential foster parents, appropriately place children with vetted parents, and provide ongoing oversight and social support to help parents care for the children. These foster care agencies are required to have liability insurance to perform this function for the government. However, securing liability insurance coverage is increasingly difficult for these agencies and, in some cases, impossible as insurers exit the market.

Liability insurance coverage has been a simmering issue in the foster care system for several decades. It has boiled over in the past 20 years, with reports about challenges securing coverage increasing in many states. In Pennsylvania, more than half of foster care providers report a lack of available and affordable liability insurance.² In New York, they have found it “extremely hard” to find insurance.³ In Nebraska, “Foster parents have been unable to obtain liability insurance coverage.”⁴ In Florida, liability insurance issues became an “existential threat.”⁵ And in Nevada, the foster care system was left scrambling after the main insurer decided not to renew policies.⁶ The challenge across these state systems is not limited to the rare low-quality service provider. It is affecting every provider, even those with high standards and spotless records.

Social inflation—the rise in liability insurance costs above the general economic inflation rate—is driving this challenge and has become a systemic risk to child welfare. In this context, its causes include the repeal of previously enacted public policies that limit the costs of lawsuits, the retroactive extension or repeal of statutes of limitation, the increased frequency of lawsuits, and the increased awards and settlements from those suits.⁷ The purpose of mentioning these factors here is not to make a qualitative judgement on any individual legal case or change of law but to identify their causal relationship with social inflation.

Unchecked social inflation drives up the cost to provide insurance coverage until it becomes unaffordable to the insured or too risky to the insurer. Entities purchase insurance to cover risks (the possibility of having to spend a sum of money). The risk in foster care most frequently stems from lawsuits. For example, a state will place a child with a foster agency, that foster agency will place that child with a foster parent, and that child may be injured or harmed while in foster care. As a result, the parent or agency could be sued for their responsibility in that injury or harm. To prevent this type of lawsuit from bankrupting the agency and to comply with state laws, entities in the foster care system purchase liability insurance. Insurers offer such insurance because they believe the risk occurring is low enough or the size of the risk (the amount that will need to be paid) is small enough that the rates they charge will offset the risk. Social inflation upsets this balance between rates charged and the risk posed by a financial payout.  

When social inflation occurs, it increases the likelihood or size of the risk. To remain solvent, insurers will increase the rates or adjust the policy’s limits (what is protected under the policy). But policies can only be limited or rates increased so much. If the factors driving social inflation are not addressed, eventually the risk side of the balance reaches a point where coverage is either too expensive for the insured entity or too risky for the insuring entity. This imbalance is why so many foster care providers are having difficulty securing liability coverage.

California provides an example of how this imbalance occurs for foster care agencies. California’s 220 foster family agencies, which are local not-for-profit organizations, work with about 25 percent of the state’s nearly 45,000 foster children to place them with foster parents.⁸ This approach is an alternative to group homes, congregate care, and residential treatment centers. As required by law and to protect themselves financially, these agencies purchase liability insurance.⁹

Recently, California amended the statute of limitations on lawsuits related to child sex abuse, allowing claims dating back to the 1950s to be brought in court.¹⁰ Repealing previously enacted public policies that limit the costs of lawsuits or retroactively extending statutes of limitations causes social inflation. The recent changes in California resulted in an increase in the number of lawsuits. For example, thousands of new lawsuits were filed in Los Angeles County alone following the amendment to the statute of limitations.¹¹ Some suits brought under this change were brought against foster care agencies. This is not a comment on the merit of any case. It is to demonstrate the cause and effect of policy changes that contribute to social inflation. Changes to the statute of limitations increase the number of lawsuits, which increases the risk of providing foster care services, which—in turn—results in higher costs for liability insurance.

Some cases brought under the amended statute of limitations have resulted in exceptionally large jury awards, which are another driver of social inflation. One case in California triggered the current distortions in the insurance market. In that case, the jury awarded $25 million to two girls and a boy who were placed by a Santa Rosa, California-based foster family agency in the care of a man who sexually abused them.¹² In this devastating case, the jury found that the foster family agency did not properly vet the placement or perform the ongoing inspections necessary to prevent sexual abuse.

As a result, the Nonprofits Insurance Alliance of California (NIAC), which insures 90 percent of foster family agencies in California, has stopped renewing insurance policies for foster family agencies and will not issue new policies.¹³ A representative from NIAC stated, “We continued over the course of probably two years to adjust policy limits, adjust terms, increase premiums, trying to do whatever we could to continue to do what we were doing and to insure the [foster family agencies].”¹⁴ But according to the president and CEO of NIAC, the situation “became unsustainable.”¹⁵ The legislature and state administrators attempted to address this issue through regulations and legislation, but those efforts were ineffective. Since the NIAC announcement, the organization’s national body, the Nonprofits Insurance Alliance, has extended this state policy nationwide and, as of January 2025, will no longer offer new policies to foster family agencies and will not renew existing umbrella policies. 

Most discussion and research on social inflation have focused on the impact on businesses (particularly larger businesses), health care providers, and individuals. However, little focus has been given to the impact on not-for-profit community service providers like foster family agencies. Given their thin margins and low revenue, social inflation has a disproportionate impact and poses a far larger threat to these entities. The result for the foster care system will be the closure of service providers like foster family agencies, which are interconnected with the rest of the child welfare system. When these entities are forced to close and their resources are taken away, it ripples through the system. When insurance is unavailable or too costly, managing risk becomes challenging, leading states to place children in environments that implement increased supervision. Thus, social inflation means more kids in congregate care, more kids in restrictive settings, and fewer kids in family-like environments. This is the opposite of what 50 years of public policy has aimed to do. The foster care system serves the most vulnerable children, and policymakers need to secure it from the threat of social inflation.

Sexual predators must be punished quickly and harshly. Those who fail in their duty to protect children from these predators must also be held accountable. This can occur without putting the entire foster care system at risk. To that end, we put forth five federal policy concepts that could allow for holding individuals accountable while permitting the foster care system to continue to do its important work. We recognize that the child welfare system is a diverse collection of smaller systems and that any ideas presented here would require deeper studies of their potential effects on individual states and counties. But we hope these provide a starting point for an urgent national conversation:

1. Create a Victims’ Fund. Congress has previously established victim assistance funds that provide one-time payments to victims. A program could be established or an existing program could be amended to provide foster children who are sexually abused with compensation for the injuries and harms they have suffered.
2. Establish a Risk Pool. One way to reduce risk is to spread it more widely across insured entities. A federal risk pool or federally supported risk pools for foster care could diffuse risk over a greater number of foster care agencies.
3. Condition Federal Funding. Providing foster and residential care to children in state custody requires adherence to state laws and regulations and professional standards of care designed to keep children safe. While attorneys often cite an agency’s failure to abide by those safety standards as evidence of liability, compliance alone usually does not provide immunity. Laws could be passed in states to limit liability for those providers who demonstrate they complied with the standards when a child suffered harm. Further, in several areas of law, Congress has conditioned federal funding to states on those states passing certain types of laws. Congress could condition federal funds on states enacting laws that limit jury awards when foster agencies comply with appropriate regulations but an injury or harm still occurs.

• Safe Provider Discounts. Auto insurance providers, often encouraged by state laws, offer safe driver discounts—especially if you’re willing to install a device in your vehicle to monitor your driving. Insurers, regulators, and lawmakers could likewise create a “safe provider” certification for private agencies. A successful audit, followed by annual reviews, could entitle a provider to a discount on liability insurance, a legal cap on damages, or other benefits.
• Subsidies. The child welfare system has acknowledged that some states cannot carry out their obligations to children in its custody without assistance from the private sector. Often those private providers are nonprofits—unable to survive on contract payments alone—and must raise philanthropic funds to fulfill their mission. If a state is going to ask private agencies to fulfill the state’s obligations to care for—and assume liability for harm to—these children, it’s reasonable to ask the state to assist in paying for the insurance coverage the agency must have to operate.

About the Authors

Each signatory’s view on this issue is their own and does not represent the view of their affiliated organization.

Scott Dziengelski is a consultant at King & Spalding LLP.

Naomi Schaefer Riley is senior fellow at the American Enterprise Institute.

Carl Ayers is the deputy commissioner of human services at the Virginia Department of Social Services.

Bob Bruder-Mattson is president and CEO of FaithBridge Foster Care.

Bobby Cagle is principal of Cagle Consulting, Inc. and former director of Los Angeles County Department of Children and Family Services and Georgia Division of Family and Children Services.

Christopher Campbell is director of advocacy and program advancement at the Virginia Home for Boys and Girls and president of the Virginia Association on Licensed Child Placing Agencies.

Maura Corrigan is a child welfare consultant and a former director of the Michigan Department of Human Services.

Abby Cox is the first lady of Utah.

Brett Drake is the Professor of Data Science for the Social Good in Practice at the Brown School of Social Work and Public Health, Washington University of St. Louis.

James G. Dwyer is the Arthur B. Hanson Professor of Law at the William & Mary School of Law.

Sarah Font is an associate professor of sociology and public policy at Pennsylvania State University.

Allicia Graham Frye is president and CEO of Jonathan’s Place.

Antonio Garcia is the Buckhorn Professor in Child Welfare at the University of Kentucky College of Social Work.

Eric Gilmore is the founder and CEO of Immerse Arkansas.

Jerry Haag is the CEO of the One More Child Foundation.

Ryan Hanlon is president of the National Council for Adoption.

Rob Henderson a senior fellow at the Manhattan Institute.

Randy Hicks the president and CEO of the Georgia Center for Opportunity.

David J. Ley is the executive director of New Mexico Solutions and the president of the New Mexico Behavioral Health Providers Association.

Rafael A. Mangual is a senior fellow at the Manhattan Institute.

Jedd Medefind is the president of the Christian Alliance for Orphans.

Rachel Medefind is the director of the Institute for Family-Centered Healing & Health at the Christian Alliance for Orphans.

Hannah E. Meyers is a fellow and the director of policing and public safety, at the Manhattan Institute.

David W. Murray is a senior fellow at the Hudson Institute.

Herbie Newell is the president and executive director of Lifeline Children’s Services.

Darcy Olsen is the founder and CEO of Center for the Rights of Abused Children.

Thea Ramirez is the founder and CEO of Adoption-Share, Inc.

Tom Rawlings is the president and CEO of Child Welfare & Justice Transformation.

Lesli Reece is a national family well-being advocate.

Steven Reick is an Illinois state representative for District 63.

Ginger Rhoads is the founder of the RAISE Foster Reform Coalition.

Ronald E. Richter is the CEO and executive director of the JCCA.

Carrie Sheffield is a senior policy analyst at the Independent Women’s Forum.

Nancy Toscano is the president and CEO of UMFS.

Kate Trambitskaya is the CEO of Spence-Chapin Services to Families and Children.

Viola Vaughan-Eden is a professor and PhD social work director at Norfolk State University.

Brad Wilcox is a nonresident senior fellow at the American Enterprise Institute and the Future of Freedom Fellow, Institute for Family Studies.

Dee Wilson is a former child welfare official for Washington state and author of The Imprint’s “Sounding Board” column.