Buyers Answer Questions, Get Creative In Hard EPL Market Coverage for employment practices liability, while still available, is more expensive and underwriters' questions are more detailed than ever, insurance buyers report.

“It's a roof to boiler room inspection, basically,” said Lance Ewing, president of the Risk and Insurance Management Society in New York, and executive director, risk management of Park Place Entertainment in Las Vegas.

“Before, [underwriters] were focused on more generic issues like training and handbooks.” Now, Mr. Ewing said, there are more questions and the length and depth of these issues compared to three to five years ago has increased, with inquiries focused on all levels of employment.

Mr. Ewing said that underwriters are more aggressive than ever, “really doing some digging, some archaeological underwriting, in order to assure that their pricing is appropriate” and to make sure that “certain protocols,” which policyholders are telling them about, are actually in place.

He emphasized, however, that this isn't necessarily a bad thing. “They are really looking at our risks, as opposed to a blanket, cursory drive-by underwriting application,” he said.

“I've always had an open door policy, and if there are glaring holes, none of us wants to be surprised. If there are areas in which we can improve, we then look to the carrier to assist us.”

“If, as a risk management professional, I'm hiding things to get a lower rate, that doesn't help anyone.”

This time around, he said, carriers want to know what practices are in place for hiring employees.

“I think there is also more of an emphasis on supervisory training,” he said. “And more emphasis on some of the upper management protocols and processes of how to handle personnel issues.”

Underwriters, he said, are looking at procedures like background checks and they are studying hiring applications.

They also are looking at an organization's locations relative to demographics. For example, he said, “Atlanta has a heavy Vietnamese population, so therefore, [insurers ask,] Are your applications, your approaches and your training available in that demographic? Are you able to communicate to those employees?”

Though headquartered in Las Vegas, Mr. Ewings company has locations in Atlantic City and Mississippi as well as other areas like New Orleans and Indiana. “They are asking about all of our locations relative to those issues,” he said.

Deb Carson, former Public Risk Management Association president and risk manager for the City of Longmont, Colo., said her strategy is to “try to wade through” the hard market “by taking on some extra risk.”

She explained that even though the entity's EPLI coverage is included in its general liability policy, “I had a very large increase in my GL, or a potential large increase. So what I did this year was take a higher retention. I went from $150,000 to $250,000. It's significant.”

Her reasoning, she said, was that “if we really got into trouble, most of these claims wouldn't pay out immediately. So we would have the opportunity to funnel more funds into that account that would cover it. We are a taxing entity, although that is a last resort.”

Many municipalities, she explained, are currently “in horrible straits. We're looking at, for the first time I can ever remember, layoffs and service reductions.”

In the past, she said, the city has had very few EPLI claims. Although “we had an Americans with Disabilities Act claim in 1994, she revealed. “And there have been allegations of discrimination, but they don't necessarily pan out.”

She said the city currently has a situation that has not yet become a claim, related to a salary freeze for all employees except for “one tiny class.” The class consisted of two employees “who were in an apprenticeship program for our electric departmentand we needed them to move through the ranks.”

As a result, she said, police and firefighters are threatening a class action lawsuit against the city claiming that they, too, must train to be promoted.

She said the suit could end up “being nothing. We'll see what happens.”

The experience has been frustrating, she said. “When you're trying to keep everybody employed and you get a couple of classes of employees that do something like this, it's really sad.”

Ms. Carson said she looks forward to a better market, when “hopefully reduced retentions will be one of the things the carrier comes back with, at some other rate that is more palatable.”

“It's a nasty market out there. I feel sorry for smaller entities,” she said.

Giving the carriers perspective, Michael Maloney, vice president and EPLI manager for Chubb Specialty Insurance in Simsbury, Conn., said EPLI, which has existed as a standalone product for about 12 years, has seen a significant escalation in both frequency and severity of employment complaints during the past 10 years.

This is a result of changes in the law, he said. Title VII of the Civil Rights Act of 1964, which prohibits employment discrimination based on race, national origin, color or gender, now allows employees to seek jury trials and punitive damages, and allow attorneys to recover their costs (as a result amendments introduced in 1991).

“That has allowed the plaintiffs bar to focus on this arena and become more active,” he said. “So there are a lot more players suing employers today than 10 years ago when we first started providing the coverage.”

The result is higher defense costs and higher settlements. “And I think some of the very high profile cases have continued to drive awareness, he said. “People know about the issues with Coca Cola settling its case for $192 million. They know about Texaco and some of the big grocery chains. They know about Home Depot and Mitsubishi. So all those things continue the awareness.”

Today's buyers need this coverage, he said. “Anyone who has employees is susceptible to an employment lawsuit, whether it's discrimination, wrongful termination, harassment or some other workplace tort.”

“The question becomes, Can I defend myself, and do I want to partner with a carrier and maybe transfer some of the risk?” he said.

During the soft market, when prices were competitive, “it was easy to get a proposal without jumping through a lot of hoops,” he said.

“Today if you're an employer, you are going to answer a few extra questions about your policies and practices, about your claim experience, your complaints resolution [policies], and, particularly, about your diversity.”

Underwriters are also more conservative in terms of what self-insurance or deductibles they ask employers to take. And pricing is higher than it has been in the preceding four years, Mr. Maloney said.

How much higher?

Small employers with up to 500 employees “are probably seeing 20-40 percent” rate hikes, he said, while mid-sized and larger employers are seeing 50-100 percent or more.

Mr. Maloney said geography is also a pricing factor. In California, for example, “the state legislature has taken the federal statutes in terms of anti-discrimination and anti-harassment laws and expanded them so that there are many more avenues to sue.”

The state has become known “as a place where juries can be anti-corporate and pro-employee,” he noted. “So people in California tend to sue more.

“If you are required to settle or if you lose in a verdict, it's dramatically high in California.”

He said rates tend to be higher, with some exceptions, along both coasts.

“I think there is a clear reason behind that,” he said. “It's the cost of living and the cost to do business and what the attorneys cost. It's higher, so what law firms charge to defend you and what plaintiffs expect to get for their services in New York, New Jersey, Philadelphia and Boston is different than Indianapolis, Columbus and Cincinnati.”

He added that there are also some industries where litigation is more prevalent. “Retail employers are challenged because it isn't uncommon to see more diversity at the sales floor level than at the store management, regional management and corporate levels,” he said. “So there is often the perception of a glass ceiling or sticky floor.”

More favorable industries have tended to be manufacturing and services, he said, though the “brand image thing makes consumer products and consumer services companies a little more susceptible to the threat of litigation and the high-profile push for a settlement.”

Mr. Maloney said that he has yet to see buyers turning to the use of captives for EPLI.

“There is still capacity,” he said. “There still seems to be the majority of buyers coming into the market and finding something reasonable.”

Reproduced from National Underwriter Edition, June 16, 2003. Copyright 2003 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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Buyers Answer Questions, Get Creative In Hard EPL Market

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