Yesterday, Today and Tomorrow: Tracing the History of EPLI

It was not that long ago that a justice was sitting in front of a U.S. Senate confirmation hearing dominated by talk of sexual harassment: The year was 1991, and the justice was Clarence Thomas.

At first, the insurance industry responded by assigning employment practices liability underwriting to directors & officers underwriters. But due to the different pattern of EPL claims compared to D&O claims—the former tend to be both high frequency and high severity, whereas the latter tend to be low frequency and high severity—that decision did not work out well for insurance companies.

One early lesson learned was that retentions are an underwriting tool for addressing perils of frequency in the EPLI space. Another was that EPLI accounts require highly specific expertise.

Within three to five years, EPLI-focused underwriters developed and started running with EPLI underwriting, and more and more insurance companies wanted a share of the fast-growing market—resulting in competition which drove premiums down even as claims frequency continued to increase.

Race discrimination, wrongful termination and sexual harassment were the most frequent allegations. As time went on, new types of discrimination claims also came to light, such as those alleging gender and sexual preference discrimination, as well as retaliation.

In 2011, wage and hour litigation became the latest phenomenon with Wal-Mart v. Dukes, in which the U.S. Supreme Court overturned a district court’s decision to certify a class-action lawsuit in which 1.6 million women with a history of employment at Walmart stores alleged gender discrimination in pay and promotion policies and practices.

Since then, wage and hour-related claims have increased in both frequency and severity: According to the annual Workplace Class Action Litigation Report, the top 10 settlements in 2017 totaled $2.72 billion—up significantly from $1.75 billion in 2016.

Finally, in 2017, the EPLI community was stunned when Harvey Weinstein was accused of sexual harassment by more than 70 women. With the launch of the viral #MeToo movement, similar allegations against other entertainers and politicians came to light.

#MeToo took sexual harassment out of the closet and into the streets. Victims were encouraged and supported to share their stories. Over a year later, victims of harassment in workplaces at all levels, from Fortune 500 companies to small firms, are still coming forward in unprecedented numbers.

The Clarence Thomas hearings were a tipping point for the insurance industry in the early 1990s. #MeToo is a tipping point today. Litigation frequency is up, victims are no longer content with silence, and corporate America is taking notice. Numerous companies have lost CEOs and other high-ranking leaders because of allegations of sexual harassment.

It’s no surprise, then, that today’s EPLI market is tightening, with the most dramatic changes occurring in California, Florida, Illinois, New York and Texas. As insurers reevaluate their EPLI portfolios, particularly in those five states, they must find new ways to make money. This generation of EPLI underwriters has never experienced a hard market, and now, they have a great deal of influence.

If these trends stick, the bar for EPLI premium increases will only go higher and higher.

Peter R. Taffae is managing director at Executive Perils, Inc.