After several years of soft-market conditions, Employment Practices Liability Insurance (EPLI) is experiencing double-digit rate increases, driven in part by claims caused by the recession.
But the regulatory and legal environment may be an even stronger force behind the rate increases, says Bertrand Spunberg, leader of Hiscox USA’s management-liability team.
EPLI, usually offered as part of a liability-policy bundle, protects employers from certain employee-enacted claims such as workplace harassment, discrimination and wrongful discharge.
Spunberg says there are two main avenues through which EPLI is currently driving losses, the first being the increasingly active role of the U.S. Equal Employment Opportunity Commission (EEOC).
“A record number of 99,947 charges of discrimination were filed against employers in fiscal-year 2011,” says Spunberg, the highest number in the commission’s 46-year history. The EEOC has recovered $365 million on behalf of those who filed the charges, he adds.
The second culprit driving EPLI rates is wage-and-hour litigation, as managed by the Department of Labor’s Wage and Hour Division. The division has increased its staff of investigators, says Spunberg, and expects to see an increase of 12,000 compliance actions over the next fiscal year—a 45 percent increase from 2011.
“We may see dislocation in the marketplace because not all carriers will be willing to provide such aggressive coverage for clients,” Spunberg says. “Whereas a typical yearly increase would be a flat-to-5-percent renewal, we are seeing a firming in the rate environment. In California especially, retentions on pricing are going up, and it is becoming difficult to place coverage.”
In order for underwriters to plan for future rate changes in liability coverage, Spunberg recommends they dig into regulatory issues: “They define the environment in which your clients work and what they can and cannot do to define exposure.”
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