EPLI claims can be some of the biggest liabilities companies face today, and for many smaller companies it can mean closing their doors permanently.
As 2019 came to a close, the employment practices liability insurance market was trending toward a hard market, driven primarily by higher frequency and severity of claims largely due to increased legislation. Then, the global pandemic hit.
“Before COVID-19 happened, we had a sustained soft market that resulted in really low premiums with carriers holding low reserves," says Heather Schaaf, underwriting director, Burns & Wilcox. “With the #MeToo movement, add in social inflation and we started to see an increase in the frequency and severity of claims leading to a hardening of the market."
“Now we are in a very hard market where we're seeing high rates and retention increases on accounts and limited capacity," she says. “A renewal might have had a $3-million limit last year, and the carrier only wants to offer a $2-million or maybe even $1-million limit this year if the company has a poor financial outlook."
EPLI claims, especially the defense of, can be some of the biggest liabilities that companies face today and for many smaller companies that are not able to deal with the financial impact, it can mean closing their doors permanently. Also, as the employee-employer relationship in the U.S. changes, it gives carriers a lot of pause for thought.
“I would say carriers are seeing, on average, 10% to 20% price increases on the book of business," says Joe Kelly, senior vice president, employment & ERISA liability national practice leader, Sompo International Insurance. “We're probably seeing the biggest shift in the smaller insureds that have traditionally received low premiums because they have a low employee count—we're seeing a lot of push-up in those premium rates and self-insured retentions."
“Additionally, [we are seeing larger increases in] segments where there's claims activity or maybe it's a troubled industry or an industry where there's a lot of activity right now, like health care," he adds.
Tightening policy terms and conditions are also currently impacting the EPLI market. Although carriers previously offered certain terms as standard enhancements during the soft market, some of these have been decreased or removed. “If policyholders had a wage and hour supplement sublimit of $250,000, now they can only get $50,000 wage and hour sublimit," Schaaf says. “We're seeing a lot harder underwriting looks at every account."
In some cases, COVID-19 exclusions are being added to policies. “We are seeing privacy exclusions being put onto the policy and I've also heard of one competitor changing the structure of the bodily injury, property damage exclusion to make that exclusion absolute," Kelly says. “Previously, there were some carve-outs for emotional distress."
“COVID-19 has emphasized the wrongful termination and discrimination concerns, and while the Paycheck Protection Program assisted by delaying a lot of action taken by employers, it did affect renewals due to unknown factors, as well as what underwriters felt would be the ultimate reduction in staff," says Peter R. Taffae, managing director, Executive Perils.
Certain trends continue to impact the EPLI market, including movements such as Black Lives Matter, #MeToo and Time's Up. Coupled with the fallout from COVID-19, EPLI is in the midst of a perfect storm.
“With regards to the focus on racial inequity in the workplace, it remains to be seen whether that will drive more discrimination litigation against employers," Kelly says. “It's conceivable to see how that could lead to more employees feeling empowered to bring those suits. We also expect to see pay equity discussions becoming more frequent based on inequities relating to race. That was one of the things that came out of the Time's Up movement."
The spread of the coronavirus has certainly added additional concerns for employers and carriers, which is being represented in rates and coverages. “With the potential for cases rising and companies having to close or partially close again, we still expect the market, as far as availability of coverage and the pricing, to continue to harden," Schaaf adds. “I anticipate that it will probably be another six months before it starts to ease up."
Olivia Overman is IA content editor.