EPLI: Why More Businesses Are Taking Risk Management Seriously

At the end of 2018, the employment practices liability insurance market began to firm slightly, with the most dramatic changes occurring in California, Florida, Illinois, New York and Texas.

Throughout 2019, it’s been much of the same—but compared to this time last year, EPLI carriers are dealing with one major exposure change: fallout from the #MeToo movement.

“If you’re looking at the books in fall 2018, carriers really hadn’t had an opportunity to measure the impact of #MeToo,” says Clint Wesolik, Esq., director/national product leader, EPL, CNA. “They were still sort of fighting their way through that with the expectation that the market would be tightening a bit.”

In the 12 months since, “I think you’ve seen carriers begin to take action on their books, and the market has continued to tighten slightly as they’ve absorbed the impact of the losses and seen how developments have impacted their overall books and performance,” Wesolik explains.

Although specific coverage responses have been limited in terms of restrictions or modifications, some carriers are cutting limits, and many are increasing retentions. “Retentions have increased overall, not specific to harassment claims, but just in general,” Wesolik points out.

“We’re definitely seeing a push on retentions,” agrees Remmie Butchko, CEO of Georgetown Insurance Service Inc. in Silver Spring, Maryland. “It’s become pretty common for us to see situations where terms, conditions, price—everything’s the same, but instead of a $10,000 retention, we’re going to have to push it to $25,000.”

Sean Jordan, senior research analyst, International Risk Management Institute, recounts a recent conversation with a California wholesaler who says $50,000 retentions are far more common than they used to be—and in some cases, “the minimum retention is $50,000, which is higher than a lot of insureds might expect,” he adds. “It seems like retentions are rising.”

But it’s not just EPLI insurers that are adjusting their approach in the wake of #MeToo. Employers are becoming more aware than ever of the importance of risk management controls that reduce and prevent discrimination, harassment and other employment-related misconduct from occurring in the workplace.

“If you could say there’s been a positive development from the #MeToo movement for the insurance world, we have seen a real increase in interest regarding what we have to offer from a risk management perspective,” says Wesolik, who notes that CNA has responded by significantly upgrading the risk management offerings it includes in EPLI policies over the past few years. “I think many carriers are having the same experience.”

“In a way, it’s good that more of this stuff is getting in the news and trade magazines and everything, because I think it’s opening people’s eyes,” Butchko agrees. “You’ve got business owners now saying, ‘Wow, this could happen to me,’ or ‘Wow, this could be going on under my watch and I might not know about it.’”

That’s a particularly important part of the EPLI risk management conversation, says Butchko, who notices a persistent gap in understanding regarding who is responsible for creating a safe workplace culture and environment. “We see a lot of occurrences at a supervisory or middle-management level, and the owners and higher-ups don’t understand they are accountable for the actions of the people below them,” he points out. “You can’t just say, ‘Well, a supervisor said that or a foreman said that, so that’s not on me.’ No—it’s you, buddy.”

It’s one of the reasons role-specific training is such a crucial piece of the risk management equation. “Ideally, a company should use one type of training course for management and another for regular staff,” Jordan says. “For example, for sexual harassment prevention and mitigation, there are nuances regarding how a regular staff member should treat sexual harassment exposures, such as how to report it up. There should be a whole separate training course for managers on how to respond to those reports. Not just using cookie-cutter training is important.”

Additional risk management techniques may include making mental health resources available to employees and implementing specific procedures and policies to address leave policies, American Disabilities Act accommodations and emerging issues like opioid abuse, PTSD and workplace violence, Jordan says.

And while many EPLI carriers will require evidence of such policies in the employee handbook, “it can’t be window dressing,” Butchko emphasizes. “It’s got to be something that has some teeth to it. You have to stand by it and you have to back it up. It can’t just be in your handbook—it has to actually be something you do, and even more important, it has to be something you do consistently.”

In a market where no two coverage forms are the same, independent agents must “take a close look at what exactly the carrier is offering with respect to that type of risk management support,” Wesolik suggests. “Are they offering actual training the insured can use in the workplace? Or are they just offering reading materials or a portal where you can log in online? This has moved beyond just another piece of paper that’s slapped on at the end of the policy to something that is very important in the current environment.”

That’s especially true for your small commercial insureds, Wesolik adds: “If you’re a small business with 10-15 employees, the cost of hiring an attorney to come in and perform a couple of training sessions annually is a significant expense. To the extent that you can obtain some of that support as part of your purchase of an EPLI policy, that’s become a selling point for carriers, and it’s something agents need to be aware of.”

Jacquelyn Connelly is former IA senior editor.