NU Online News Service, July 3, 8:30 a.m.EDT

After several years of soft-market conditions, EmploymentPractices Liability Insurance (EPLI) is experiencing double-digit rate increases driven in part by claims caused bythe recession and lawsuits against directors and officers, whichhave caused surges in defense costs.

But the regulatory and legal environment may be an even strongerforce behind the rate increases, says Bertrand Spunberg, leader ofHiscox USA's management liability team.

EPLI, usually offered as part of a liability policy bundle,protects employers from certain employee-enacted claims such asworkplace harassment, discrimination, and wrongful discharge. Spunberg says there are two main avenues through which EPLI iscurrently driving losses. The first is the increasingly active roleof the U.S. Equal Employment Opportunity Commission (EEOC).

“A record number of 99,947 charges of discrimination were filedagainst employers in the fiscal year 2011,” says Spunberg, “thehighest number in the 46-year history of the commission. The EEOChas recovered $365 million on behalf of those who filed thecharges.”

He adds that the budget filed by the EEOC for the fiscal year2012 indicates more charges and recoveries will likely be filed andsecured. “When the EEOC works with plaintiffs to resolve issues,the company has to pay losses, which means carriers have to paylosses,” he notes.

The second avenue driving EPLI rates is wage and hourlitigation, as managed by the Department of Labor's Wage and HourDivision. The division has increased its staff of investigators,says Spunberg, and expects to see an increase of 12,000 complianceactions over the next fiscal year, a 45 percent increase from2011.

“We may see dislocation in the marketplace because not allcarriers will be willing to provide such aggressive coverage forclients. Whereas a typical yearly increase would be a flat-to-5percent renewal, we are seeing a firming in the rate environment.In California especially, retentions on pricing are going up, andit is becoming difficult to place coverage.”

In order for underwriters to plan for future rate changes inliability coverage, Spunberg recommends that they dig intoregulatory and monetary policy issues. “They define the environmentin which your clients work, and what they can and cannot do todefine exposure.”