EPLI Services Pushed To Limit Losses

In the past, the idea of offering risk management services with employment practices liability policies seemed like an afterthought–an add-on that some EPL carriers packaged with their policies to set themselves apart from competitors.

Now, experts say these services are absolutely essential to creating better risks–and brokers, not just insurers, have gotten into the business of supplying them.

“A lot of EPL insurers in the last two or three years added toll-free numbers, and theyll do audits of policies and procedures, but its been really passive,” said Peter Taffae, a wholesale broker for e-peril.com in Los Angeles.

Until recently, he said, no one had taken such services seriously, referring both to underwriters and clients. The services werent maximized and people werent using them, he said.

Mr. Taffae, a self-described “D&O guy” who doesnt normally get involved in loss control–the territory of “boiler and machinery and property guys”–said he has immersed himself in the concept by striking up a strategic alliance with a law firm. “To get these deals done and protect the insured, weve had to set up work-out programs with law firms to actually implement tangible loss prevention measures,” he said.

While EPLI risk management services, including audits, seminars and Internet-based training, have been the province of insurance carriers in the past, Mr. Taffae described why broker involvement makes sense.

“We had an account in Las Vegas that had just over 10 claims in a year,” he said. “The claims didnt amount to a lot, but there was too much frequency and the underwriter just didnt feel like the insured was really on top of its game.” Though no one wanted to renew the coverage, “there are about 1,000 employees. They had to have it,” he recalled.

After asking a law firm what steps could be taken, the firm looked at the allegations. “Without actually getting engaged right away, they said these are the types of things that we think could be done to minimize claims,” he said.

The underwriter agreed that if the client would be willing to retain the law firm to do at least three out of the five recommended actions, they would renew the account for another year. “Its worked out well. Its turned around. Its really a success story,” he said, although he declined to reveal the name of the client or the law firm.

Letha Heaton, vice president of sales and marketing for Shand Morahan & Company in Deerfield, Ill., said underwriters like Shand are also “focusing a bit more on loss prevention.” Indeed, she said that Shand, which generally writes EPL for businesses with under 200 employees, is considering imposing a mandatory loss prevention requirement for certain classes of business.

The companies, she said, would have to take discrimination testing, “a program that we would offer them over the Web.”

She noted that the mandatory training would probably apply to classes like contractors and construction companies, which by their nature are “the first to suffer when the economy starts compressing.” Ms. Heaton explained that construction is also a tough class because work is “very transient, and the quality of human resources, training and policies are not very good.”

Shand, the underwriting manager for Evanston Insurance Company, also provides an optional helpline staffed by a legal firm, she said. This is available to all clients on an as-needed basis.

Also available is a Web site that updates customers, both policyholders and producers, on new legislation and tort law changes. The Web site also offers tools, such as examples of how to conduct exit or hiring interviews, and a sample human resources policy handbook, as well as a bulletin board where customers can post questions, she said.

At Chubb Specialty in Simsbury, Conn., Michael Maloney, vice president and EPLI manager, also described an array of service offerings. He emphasized that Chubbs approach is to make a wide spectrum of tools available for a very diverse client base.

A feature of Chubbs EPL insurance program that allows for client customization is a cost-sharing plan, he said, explaining that Chubb will pay 50 percent of the cost of loss prevention tools that its clients go out and pay for, up to a maximum of 10 percent of the premium. In other words, he said, Chubb allocates 10 percent of the premium that it gets paid to a fund that clients can use to spend on loss prevention.

Fund dollars may also be spent to hire employment law firms or human resources consulting firms to do training, for statistical assessments of hiring, pay or promotional practices, or to rewrite their employee handbooks.

Another component of Chubbs service array is Web site training, AgosNet for Chubb, created by a third-party vendorthe AGOS Group. This site gives customers access to overviews of employment laws and statutes, sample employment policies and procedures, and an online magazine written by employment law and human resources experts.

Chubbs 1-800-number service, available through the law firm Jackson Lewis, he said, is probably attractive to smaller clients. He reasoned that because such firms dont have internal legal resources, they might want the ability to pick up the phone and ask an expert about a situation that could lead to an employment practices complaint.

Ann Longmore, the national EPL practice leader for Willis in New York, agrees that loss control services are important, but said that in the past carriers have ignored those insureds that could use them most. In particular, she pointed to not-for-profit institutions, especially those in the healthcare sector. Those institutions, which typically purchase packages of coverage that include EPL and D&O, “never got access to that whole array of loss control tools available on standalone” EPL policies.

“Healthcare generally is a more challenged class–and now [healthcare institutions] are being bedeviled by EPL claims,” she said, noting that Willis has been pushing for carriers to begin offering loss control tools to healthcare firms and other not-for-profits for two years.

“We were being told that EPL claims were making these accounts very unattractive,” she said. In addition, “these are the people who have fewer resources to throw at the problem,” in particular, because many are going through restructurings, joint ventures and other types of consolidations.

Of the carriers, Ms. Longmore said, “We heard them say, its already getting into the non-profitable zone and we dont have money to pay for their loss control,” she said, but the institutions “dont have [the funds] either.”

She asked: “What about those accounts we want to pull back over the line” to make them profitable for carriers–an argument she said she has voiced to carriers. “They want to become better accounts and [carriers] are getting sizable premiums” for them, she said, noting that some combined D&O/EPL programs for healthcare non-profit organizations command six-figure premiums.

“They should have access to loss control,” she said, reporting that in 2002, most carriers, “have at least made part of their loss control arrays available to those accounts.”

In general, Ms. Longmore said that with retentions going up on EPL insurance programs for both non-profits and for-profits, brokers are making a stronger push for clients to tap services with which they can demonstrate to insurers their ability to control losses, potentially putting a lid on retention and prices.

Willis, she noted, holds seminars on various topics related to EPL to assist clients even further–for example, to explain the potential EPL effects of recent court cases involving the arbitration and collective bargaining agreements.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, May 13, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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EPLI Services Pushed To Limit Losses

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