Prices for food, milk and gasoline are all soaring, but one new entrant to the employment practices insurance market is offering EPLI coverage to small employers for less than it costs to fill up a minivan.

While a policy cost as low as $32 per employee may seem groundbreaking, it is the coverage pairing of EPLI with workers' compensation that's the real innovation for MEMIC, a Portland, Me.-based workers' comp insurance group.

"It probably is a first," said Donald Hale, MEMIC's senior vice president of underwriting, referring to an EPLI endorsement to workers' comp policies that MEMIC first began offering with April workers' comp renewals, known as MEMIC Edge. "No one has ever done this before that we are aware of," he said.

Another new EPLI market entrant, Progressive, better known for its expertise in providing auto insurance for minivans and cars, is charging prices a little higher than MEMIC. Like Maine's biggest workers' comp insurer, however, the Mayfield Village, Ohio-based company also has entered the EPLI market with the promise of bringing affordable coverage to small employers.

Joe Aber, business development manager for Progressive's professional liability group, noted that while there is actually no designated minimum premium on the standalone EPLI product that his company began rolling out in May, a small employer selecting a $100,000 limit could pay as little as $500. Other competitors in the EPLI market, he added, may have minimum premiums as high as $1,500.

The actual premium for Progressive's policy, he said, would be dependent on number of employees, state, industry class and selected limit.

During an interview last week, Mr. Aber made no reference to the line of business that Progressive has become well known for as the third largest writer of personal auto insurance in the United States. Instead, he pointed out that Progressive has been a provider of professional liability insurance products--including EPLI and directors and officers liability--for more than 20 years.

"That experience has been focused on a partnership we have with the American Bankers Association," he said, noting that the success of the ABA program for small community banks prompted Progressive to seek opportunities to serve a broader client base with professional liability products.

MEMIC's expertise actually comes by way of London, Mr. Hale said. He added that MEMIC's EPLI endorsement is 100 percent reinsured to Beazley, a manager of two Lloyd's syndicates and worldwide specialty operations that is also a longtime participant in the EPLI market.

Although press statements released by MEMIC and Progressive earlier this year both emphasize the affordability of their new EPLI products, Mr. Hale and Mr. Aber each highlighted different reasons behind their efforts to develop their EPLI products in interviews with NU last week.

At MEMIC, Mr. Hale sees the offering as a natural extension of his company's focus on workplace safety.

"In workers' comp, we're in the business of managing employer-employee relationships," he said. "Our focus as a company is on safety and claims management. We commit a lot of resources to best practices" in those areas, "so we felt this was basically just a very good fit for what we do with our clients." He suggested that workers' comp carriers have overlooked the connection in the past.

Mr. Hale said MEMIC's claims department gets inquiries related to EPLI issues from time to time. EPL issues can also surface when workers get injured, he said, noting, however, that with its monoline focus on workers' comp, the carrier was previously not in the position to address such questions. "We would basically have to say, 'You need to call your attorney.'"

He said, "Because we are a heavy service organization, we wanted to be able to direct them somewhere. It just became very clear to us that [EPLI was] a product we could offer in conjunction with workers' comp."

At Progressive, Mr. Aber suggested that small businesses are increasingly realizing the risks they face from employee lawsuits alleging discrimination or wrongful termination, as well as the significant costs involved in defending such cases.

As a result, "the market for small business has grown over the past few years," he said, and Progressive saw a role to fill in marrying its past experience in the professional liability insurance with the company's overall focus on "ease-of-use technology" for agents.

"Historically, most agents have an E&O [errors and omissions] exposure, if they're not offering [EPLI] to their small business clients." The process of getting a quote for standalone EPLI coverage from a specialty insurer, however, "has tended to be very paper-intensive," Mr. Aber said, explaining that this typically involved filling out a five-page application and a long wait for a quote turnaround.

Through Progressive's agency platform, known as ForAgentsOnly.com, Progressive agents can now quote and bind EPLI online with a minimal amount of questions, Mr. Aber said. "The technology even permits the agent to e-mail the application to their clients" to complete, he added.

At MEMIC, Mr. Hale said no application at all is required for what he referred to as embedded coverage--a basic endorsement with a $5,000 deductible and $100,000 limit, which includes defense within the limit.

He said that unlike many of the "canned programs" available in the marketplace as add-ons to businessowners package policies (BOPs), which might have a take-it-or-leave-it EPLI coverage grant of $50,000 or so, MEMIC offers limits options as high as $1 million and deductibles as low as $2,500. Other enhancements are also available with MEMIC Edge, such as third-party coverage (for discrimination suits brought by nonemployee third parties) and punitive damages coverage.

Requests for the enhanced coverage, Mr. Hale noted, will trigger the need for an application to be filled out by the agent, requesting an insured's past claims history or potentially insured incidents, explaining that customers seeking more coverage probably usually request it for a reason, thus requiring more underwriting.

Mr. Hale suggested that even the embedded product offers far more than BOP packages out in the market. He said that a 12-page endorsement speaks to the broad coverage grant in the tailor-made form crafted with Beazley experts, and that a hotline providing legal advice on employment issues is also available.

Another key distinction, he said, is that while many BOP add-ons have long lists of restricted classes for which coverage will not be offered, MEMIC has only two--employee leasing firms and municipalities.

"We can even write attorneys," he said, noting that higher hazard classes pay more than $32 per employee. "They actually go up to $70 or $80," he said. Mr. Hale added that MEMIC also has written accountants, third-party coverage for restaurants and health care businesses--a big part of MEMIC's workers' comp customer base that would be denied EPLI coverage by most other carriers.

"We felt we could bring this product to the masses," Mr. Hale said. "It obviously will improve our retention over time and our relationship with our clients, and we felt this was something we could do that others couldn't. That was a primary motivation."

He noted that Maine Employers' Mutual Insurance Company has 65 percent of Maine's market share. "We've held onto that through hard and soft markets, even though we began our existence as a market of last resort," he said.

Noting that the insurer writes about 90 percent of the businesses in Maine, Mr. Hale said there are many small businesses in the mix. "They might not even have access to this product, certainly not as an E&S product. That's why we addressed it."

One restriction limiting the types of businesses to which the insurer can offer the EPLI endorsement in Maine is an external one imposed by state regulators. Mr. Hale explained that because the company was strictly a workers' comp carrier, it had to file a charter change with the state. The state limited the scope of the offering to companies with less than 100 employees.

While that encompasses the majority of MEMIC's Maine policyholders, there are insureds with more than 100 employees that have inquired about EPLI coverage. For those companies, MEMIC does direct placements of standalone EPLI coverage with Beazley through an in-house agency.

Within the year, MEMIC intends to offer its EPLI endorsement to workers' comp policyholders in other states, currently written through an affiliate, MEMIC Indemnity. MEMIC Indemnity is licensed in all states except West Virginia, which is just opening up to competition--the insurer filed for a license there as well, Mr. Hale said.

Mr. Hale noted that MEMIC's expansive coverage grant to most industry classes is a feature that works to keep the price low.

"The key is to have a spread of risk," he said, noting that the product was priced across the entire book to arrive at the $32-per-employee cost, assuming there would be significant participation and the carrier would not be adversely selected against.

"The pricing model really related to the numbers that we expect to write and the market penetration that we have," he said.

Getting from the current level of participation--roughly 30 percent--to the wider level of acceptance contemplated in the pricing model will take some work, Mr. Hale said, adding that while MEMIC is recording increased participation each month, success ultimately depends on the efforts of agents.

"We have 22,000 policyholders just in Maine," he said. "It's not something we can roll on. We have to address it with each individual client" through the agency force.

"We've focused our energies, other than advertising, on training contracted agents," he said, pointing out that 70 percent of MEMIC's business in Maine is placed through contracted agents.

Similarly, Mr. Aber said Progressive provides two online tutorials for agents. One explains the online rating application and how to use it, and the second is the value of EPLI to the small businesses.

"One of the key things to focus on is that this [coverage offering] is a tool for our agents to grow their businesses. It's an opportunity for them to take advantage of the growing marketplace and offer superior protection for their small business customers," he said.

Mr. Hale said, "It's a great opportunity in a soft market to add a new coverage when generally rates are falling."

While the timing is opportune from that standpoint, challenging economic conditions that may give rise to more EPL claims could have given the new entrants pause.

"It is true that you will see an uptick in EEOC actions in the downturn of an economy," Mr. Aber said. "Is it a concern? Absolutely, but not enough" to keep Progressive from moving forward. (See related articles for more on increasing EPL claims potential.)

MEMIC is somewhat protected from adverse experience because its product is fully reinsured, but a profit-sharing agreement with Beazley is an incentive to avoid losses.

"We're insuring businesses we have familiarity with," Mr. Hale said, also noting that many claims are frivolous, occurring when someone is terminated and files suit. Similar to workers' comp, timely handling of claims pays off.

"We've already had a few incidents resolved that never became claims because [insureds] asked for advice," he said. "They get the legal advice and do the right thing so they don't get sued."

In addition to making a Web portal with human resources materials and legislative updates available to MEMIC Edge EPLI customers, some also have access to a legal advice hotline. He said agents are allowed to choose which insureds are offered this added service.

Given the expense involved in making such advice available, Mr. Hale noted that with an eye toward getting most comp insureds to accept the EPLI coverage, MEMIC couldn't afford to offer the enhancement to all 22,000 policyholders.

With their new EPLI products, both MEMIC and Progressive offer legal defense from one designated expert labor law firm. For MEMIC, the firm is Tarrytown, N.Y.- based Kissel Pesche Hirsch Wilmer. Progressive's product gives its policyholders defense from the largest employer defense firm in the country, Littler Mendelson.

"Each one of our insureds has full access to their services, including unlimited phone consultation," Mr. Aber said. He contrasted the service with other EPLI providers that put a half-hour time limit on this service.

In addition, he said, Littler makes its library of HR firms and resources available to all insureds--including model employee handbooks and employment law reference manuals. Legally compliant employment applications, offer letters, performance evaluations and termination checklists are also included.

Mr. Aber said most types of businesses are acceptable risks for Progressive, noting that the only key classes excluded are law firms and doctors offices. With respect to size, Progressive is targeting businesses with 250 employees or less.

"As far as the coverage goes, it's state of the market," he said. "We offer full past acts, as well as options for third-party coverage and defense outside the limits."

With the product already available in 10 states--Ohio, Florida, Pennsylvania, Georgia, Illinois, New Jersey, Arizona, Minnesota, South Carolina and Indiana--next up is North Carolina, where the coverage will be available on Aug. 1. Plans call for rolling it out to the remaining states throughout the remainder of 2008 and 2009, Mr. Aber said.

For more information on EPL market and claims trends, see related articles:

o Buyers Market?

o Faltering Economy To Spur EPL Suits, Bermuda Underwriters Warn

Special Reports /

Workers' Comp, Auto Carriers Launch New, Cheaper EPLI Cover Options

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