The sluggish economy and more worker-friendly laws have employers on the defensive. When the survey asked why they were worried about an employment claim, 40 percent of those small business owners blamed the recession and 60 percent cited new laws that could make it easier for employees to file a charge. The EEOC also noted economic conditions, a more diverse workforce and a greater awareness of employee rights. Changes in procedures have also cut the number of steps for an employee to file a claim, the agency said.

Employees know their rights under employment laws. Agents, brokers and other insurance professionals should be educating their small business customers about the increased risks and the new availability of insurance protection. A growing number of general liability carriers are packaging EPLI with their small business policies to make the coverage easier and more affordable.

Read AA&B's May article "Using the wholesaler connection to deliver EPL coverage.

The trend toward big risks

It's a trend that recognizes the fact that small businesses face big risks from employment-related claims. One business owner who was sued for age discrimination spent two years defending himself. Another was forced to abandon a 25-year career and start over in a new field when he was sued for wrongful termination and sexual harassment. Neither small business owner had purchased EPL insurance.

A business owner should not be so exposed. But many small businesses don't have internal resources, such as in-house counsel and human resources professionals, to establish risk-management policies and procedures, or rigorously document poor employee job performance.

"We don't keep good records about our employees' performance," said the owner of a telecommunications business. "My human resources friends say we really need to do more, but it isn't easy in a small company."

The more intimate working environment can also lead to heightened risks. Large companies may lay off hundreds or thousands of people at a time. At a small firm, firings are much more personal and closely scrutinized. Anger about a layoff and the inability to find a new job can make employees more litigious.

That climate has some owners looking for other options, even if layoffs make sense financially. For example, one survey participant said, "Instead of laying people off, we have been reducing hours instead." However, almost half of the small business owners questioned didn't know that more affordable employment practices liability coverage was available to them.

The survey also found that 60 percent of small business owners believed it would cost less than $20,000 to defend against an employment charge. EEOC statistics show that 81 percent of claims settle for an average of $22,400 to $40,500. With nearly half of the owners unaware that affordable coverage is available and so many underestimating the true cost of defending themselves, it's clear that many are exposed to the threat of an employment-related charge.

When they learned that coverage was available, more than 90 percent of small business owners said they would be interested in an affordable EPLI policy. Increasingly package insurers are offering coverage that is designed and priced specifically for small businesses. EPLI for small business owners has more flexible limits and risk management services that are important to smaller employers.

EPLI policies for small businesses can offer coverage previously only available to large corporations. In addition to claims brought by employees, programs may respond to claims brought by independent contractors and volunteers. Other advanced coverage may include prior acts, punitive damages and third-party claims by customers. A loss prevention Web site can provide employment procedures ready to download and use. Sexual harassment training is available online. Some EPLI coverage even offers a legal telephone help line with local attorneys who provide general employment guidance to business owners.

In today's workplace, employers and employees alike are feeling uncertain and anxious. Employment practices liability insurance helps fill a coverage gap for small business owners. It offers financial protection against employment-related claims and valuable risk management services. And it presents agents and brokers with a source of new premium, helps protect against errors and omissions claims, and provides real value for small business customers.

Jeffrey O'Shaughnessy is vice president for employment practices liability for The Hartford Steam Boiler Inspection and Insurance Company, which partners with other insurance companies to reinsure and administer EPLI programs that are packaged with the companies' small business policies.