Prices Up, But Broadest EPLI Covers Still Available

By Gary S. Mogel

Premiums are up about 15 to 30 percent for employment practices liability insurance, but the limits and coverages employers want are generally available for most types and sizes of businesses, say EPLI underwriters and brokers.

“More surgical” is how Salvatore Pollaro, senior vice president of employment practices liability for Zurich North America in New York, characterizes the current EPLI pricing environment. “Insurers are underwriting on an account-by-account basis and are considering industry, number of employees, loss history, layoffs, business slowdowns and other factors,” said Mr. Pollaro.

While noting that it is difficult to come up with an “average” rate increase, he said that increases of 30 percent are not unusual, and can be over 100 percent for employers that do not fare well when the above-mentioned and other underwriting factors are applied to them.

Carrie Brodzinski, vice president of the executive liability group for Hartford, Conn.-based Travelers Bond, has seen premium increases of approximately 30 to 50 percent for employers with over 4,000 employees. Those with less than 4,000 employees are generally experiencing 15 to 20 percent increases, she added.

Tom Hams, director and EPLI national product co-leader for Aon Financial Services Group in Chicago, agrees with Ms. Brodzinski that premium increases have tended to be based on employer size. However, as a broker he has seen a wider variety of quotes and considerably larger increases.

“Employers in the under-4,000 employee range have sometimes received increases of 30 to 50 percent, while for larger employers it can be 50 to 100 percent,” Mr. Hams pointed out. “Employers coming off of favorable multiyear deals are being especially hard hit.”

“Carriers are trying to price appropriately now in order to make up for the soft market years,” said Lucy Ann Galioto, vice president and EPLI product leader for New York-based National Union, an AIG member company. “National Union has not had that problem because we have always adhered to strict underwriting guidelines and practices.”

Ms. Galioto declined to pinpoint a typical premium increase, as these vary greatly. “Each account is reviewed individually, taking into account jurisdiction, claims history and other factors,” she explained.

All of the EPLI experts agree that there have been no drastic coverage changes and the desired limits can usually be obtained, although you may have to go the layering route.

“EPLI coverage is broad, and there is no overall industry capacity shortage,” said Mr. Pollaro. “But you may now need multiple carriers to obtain a limit you used to obtain in a single block from one market,” he added.

Aon's Mr. Hams agreed that EPLI policies are generally “very broad contracts.” However, he has noticed more insurer sensitivity to providing third-party coverage–for discrimination claims made by customers. Some carriers are refusing to write that coverage for the retail industry.

Ms. Galioto sees National Union continuing to provide third-party coverage, but with “more intensive underwriting.” Insurers in general have become more selective in providing third-party coverage, following several high-profile suits by African-American customers against restaurant staff who allegedly refused to serve them in the same way that white customers were served, she indicated.

Mr. Hams also noted a trend of carriers eliminating “retention give-backs” that had been included in some EPLI policies. Retention give-backs basically reduce the deductible if the insured prevails in the litigation.

“Good clients were winning many cases and costing the insurers too much money,” Mr. Hams said.

Ms. Brodzinski of Travelers Bond echoed her colleagues, noting no major coverage changes. “Insurers aren't paring back coverages, policies are providing the broadest coverages they [insured clients] ever had. Plus, the policies often include no-cost risk management services.”

“Larger employers might not get the $50 million they want from one carrier,” Ms. Brodzinski continued. They might need three carriers providing 10, 15 and 25 [million].” The premiums for excess layers are getting higher, sometimes up to 70 percent or more of a primary limit of the same dollar amount, she added.

One important policy change mentioned by Mr. Pollaro and Ms. Brodzinski is “split retentions”–one retention for class actions and another retention for non-class actions.

According to National Union's Ms. Galioto, the Fair Labor Standards Act exclusion is being clarified to make it clear that EPLI insurers “are not guarantors of unpaid wages.” She explained that there were some California employers that tried to make their insurers into such “guarantors.”

Another point on which the experts agree is that “blending” EPLI with directors and officers, fiduciary, and other coverages into one policy is fading away, in favor of stand-alone policies.

Aon's Mr. Hams said that EPLI has “dramatically gone stand-alone. Blending has gone away.” He added that underwriters of other lines didn't really fully understand the employment exposures. “They also realized that they can get hit on all three lines–fiduciary, D&O, and EPLI–at one time. Also, they wanted to get separate premiums for each line.”

Ms Galioto of National Union agreed that stand-alone EPLI is “more popular” now, but noted that private companies often want to combine D&O and EPLI.

Zurich's Mr. Pollaro continues to see packaging of EPLI with other coverages for smaller clients, while the larger clients are gravitating toward stand-alone.

Ms. Brodzinski added that even if several coverages are packaged into one policy, clients have become more interested in buying separate limits for each. She also said that retentions are increasing, often being in the $250,000 to $1 million range. “For split retentions, the class action retention may be double the non-class retention.”

Not many new carriers are entering the EPLI market especially as respects insuring larger (over 4,000 employees) employers. Mr. Hams, who deals with a multitude of insurers, cited XL, AIG, Zurich and Hartford as the key players in the large employer market. “There is a fairly full field willing to insure the smaller employers,” he added.

“Many carriers don't want the national accounts, but National Union does, as we write all sizes,” Ms. Galioto said. “But for the middle group and smaller, everyone wants those.” She pointed out that, overall, the number of insurers writing EPLI has decreased, compared to the many carriers writing the coverage during the soft market.

As for claims activity, age, race and sexual harassment remain the “big three,” Ms. Brodzinski noted.

“The hottest issues right now are the uptick in age claims, as well as the continuing problems with sexual discrimination and harassment,” said Ms. Galioto. “There have been age claims related to layoffs from the cooling down of the economy and the general aging of the workforce.”

“As for sex-related allegations, that's a result of more women in the workforce and increased publicity surrounding such lawsuits.” Also, a lot of employers “just don't get it” when it comes to educating and training their employees with respect to discrimination and harassment policies, she added.

There has been some good news, though. Ms. Galioto was happy to report a trend in the courts to deny certification of employment-related class action lawsuits. But there are still the “mass actions” involving multiple claimants, she said, and those are on the rise.

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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Prices Up, But Broadest EPLI Covers Still Available

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