A different world for EPLI. (Special Report: Employment Practices).
Risk managers are facing a market for employment practices liability insurance that includes higher rates, stricter terms, and a resistance from insurers to fine-tune policies.
It wasn't long ago that insurers were banging on doors, aggressively seeking to write employment practices liability coverages. Today, their attitude has changed dramatically, and they are characterized by one broker as reluctant providers who now "hem and haw" over coverage terms and conditions.
Are there still a large number of EPL 1. EPL - Early PL/I.
2. EPL - Experimental Programming Language.
3. EPL - Eden Programming Language. U Washington. Based on Concurrent Euclid and used with the Eden distributed OS. Influenced Emerald and Distributed Smalltalk. insurers offering a variety of product choices? Yes, report experts. But risk managers, having long grown accustomed to an EPLI EPLI Employment Practices Liability Insurance environment clearly favorable to the buyer, are likely to see their position weakened as insurers raise rates, set stricter terms, and resist overtures by insurance buyers to fine-turn policies to meet their very specific needs.
"There is a big difference in the EPL market from just one or two years ago when the market was relatively soft and providers were giving away the store," says Gina M. Higgins, managing director, Marsh, a national broker headquartered in New York New York, state, United States
New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of .
At the time, she recalls, the market was saturated with more established products, and insurers, looking to bring in additional income, aggressively sought to garner EPLI marketshare. Yet the passage of time, explains Higgins, has seen EPLI claims hitting reserves. She says EPLI claims are now both high in frequency and severity. Add to this an insurance and reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. marketplace that is hardening across the board.
Higgins, who is also the Marsh EPL practice leader for FINPRO (financial products, insurance programs, and transfer mechanisms), outlines several trends related to the EPLI marketplace included in the Marsh "2001 Insurance Market Review and Forecast." Specifically, she reports that upward pressure on EPLI rates will continue as losses threaten to erode insurance reserves and that retentions will continue to rise to help counter premium increases, with some estimates pointing to retention increases as much as fivefold fivefold
1. having five times as many or as much
2. composed of five parts
by five times as many or as much
Adj. 1. .
Additionally, Higgins reports that while capacity will remain stable, multiyear policies may not be available at all. Risk managers, she believes, would be well advised to secure EPLI now and to take advantage of the terms and conditions that might still be available, cautioning that within the year, "the marketplace will be extremely hard. Looking forward, I don't see it getting any better."
In his "Employment Practices Liability Insurance Market Survey," Richard S. Betterley likewise points to plans by most EPLI carriers to increase rates and, in particular, retentions. This is a result, notes Betterley, president of Sterling, Mass.-based Betterley Risk Consultants, "of general unprofitability in the line, particularly frequency, as well as an insurance environment that is more willing to charge higher rates."
Betterley, whose management consulting Noun 1. management consulting - a service industry that provides advice to those in charge of running a business
service industry - an industry that provides services rather than tangible objects company publishes "The Betterley Report" six times a year, also notes that the number of carriers offering EPLI, while still significant, is beginning to shrink, with this trend attributed to several factors. These include: decisions by carriers to consolidate their products, the exiting of the line by some carriers that either were unprofitable for EPLI or did not have sufficient volume, and industry consolidation.
Other EPLI trends cited by Betterley in his market survey include a reduction of limits of coverage by some EPLI providers, an increase in rates ranging from 5 percent to 50 percent, and a rapid change in the retentions or deductibles that carriers are willing to write. (For more from the Betterley report, see related story on page 20.)
Richard V. Rupp, vice president and EPLI product manager of Professional Indemnity Agency, concurs that the EPLI marketplace is changing, characterized by "continuous tightening and an increase in pricing."
"Clean accounts," as well as the smaller employer accounts generally not a big target of plaintiff attorneys, might not find the EPLI marketplace tightening as severely as do their larger employer counterparts, says Rupp. Yet he does caution that they are still likely to see retentions rise significantly, perhaps from $5,000 to $10,000, or if currently at $25,000 to $50,000. Larger accounts with a typical attachment of $100,000 could well see that requirement rising to $250,000.
According to according to
1. As stated or indicated by; on the authority of: according to historians.
2. In keeping with: according to instructions.
3. Rupp, whose San Francisco-based specialty lines MGA (1) (Monochrome Graphics Adapter) A display adapter that employs Hercules Graphics, combining graphics and text on a monochrome monitor.
(2) (Matrox Graphics Accelerator) A trade name used by Matrox Graphics Inc. has an emphasis on EPLI despite a decidedly hardening marketplace, demand for EPLI has not waned. In fact, he reports his agency has doubled its EPLI premium volume every year for the last four years. "More people are buying it," he observes, noting with some irony that the slowing economy, which can fuel EPL claims by laid off or terminated employees unable to find work elsewhere, is also the impetus behind many EPLI purchases. Many employers, he observes, foresee the probable reactions of workers as mergers, acquisitions, and large-scale layoffs force them out of a job. "In a good economy, terminated workers had another job to go to. But in a bad economy, more people are looking to bring an EPL claim. Employers are looking for Looking for
In the context of general equities, this describing a buy interest in which a dealer is asked to offer stock, often involving a capital commitment. Antithesis of in touch with. protection."
Coverage Terms Tighter
Yet the protection employers seek is changing as EPLI insurers face the stark reality that it's difficult, at best, to be profitable with a product so high in frequency and severity and which is subject to "so much diversity across the courts," says Pamela J. Ritz, president of Specialty Risk Management, an independent risk management consulting company in Austin, Texas. Companies, continues Ritz, "know they have to sit down and look at their (EPLI) book." This closer scrutiny has revealed some unsettling un·set·tle
v. un·set·tled, un·set·tling, un·set·tles
1. To displace from a settled condition; disrupt.
2. To make uneasy; disturb.
v.intr. trends that have likewise prompted EPL insurers to make changes in how they underwrite and price their product.
For example, Ritz points out that in the mid-1990s, EPLI was priced at an average of $125 per employee, declining steadily as the marketplace softened and falling to as low as $50 per employee as recently as two years ago. Now, reports Ritz, EPLI prices are edging back to the $80 to $100 per employee range and are likely to increase some 20 percent to 30 percent in 2002. And those industries with a typically high employee turnover rate, or with other unfavorable underwriting characteristics such as a highly decentralized de·cen·tral·ize
v. de·cen·tral·ized, de·cen·tral·iz·ing, de·cen·tral·iz·es
1. To distribute the administrative functions or powers of (a central authority) among several local authorities. work force, could find it difficult to obtain EPLI, or at best, see their rates "shoot through the roof," Ritz adds.
Coverage terms and conditions, Ritz continues, are also becoming tighter, with risk managers perhaps once again seeing the reintroduction of copayments on a portion of the loss. Coverage chargebacks such as punitive damage and downsizing (1) Converting mainframe and mini-based systems to client/server LANs.
(2) To reduce equipment and associated costs by switching to a less-expensive system.
(jargon) downsizing exclusions and the decision by insurers to offer inception-only policies that no longer provide coverage for prior acts are also likely scenarios in the EPLI marketplace going forward, Ritz predicts.
"All insurance markets are in a hardening mode, and while financial services The examples and perspective in this article or section may not represent a worldwide view of the subject.
Please [ improve this article] or discuss the issue on the talk page. products might be lagging behind other casualty areas, they are also experiencing rate and attachment improvements. The inertia going forward is for higher rates, more attachment selection, and a firming of terms," adds Paul C. Cunningham, vice president, casualty, at Boston-based Lexington Insurance Co.
According to Cunningham, whose company is a wholly owned subsidiary Wholly Owned Subsidiary
A subsidiary whose parent company owns 100% of its common stock.
In other words, the parent company owns the company outright and there are no minority owners. of AIG AIG addressee indicator group (US DoD)
AIG American International Group, Inc
AiG Answers in Genesis (religious group in defense of Scripture)
AIG Artificial Intelligence Group
AIG Australian Industry Group and a writer of EPLI, this hardening tend, which was evident in 2001, is expected to continue. Brokers, having grown accustomed to an EPLI environment very receptive to tweaking tweaking Vox populi Fine-tuning to produce optimal results a policy, perhaps by endorsing on third-party coverage or broadening key definitions or terms, are now likely to see more resistance to these requests by underwriters.
"In the past, a broker would come up with 40 things they wanted changed (in an EPLI policy)," recalls Cunningham. "Now underwriters are not as willing to make these changes. It will be more difficult for brokers to manuscript their own language beyond what underwriters think is sound."
There are also a number of troubling external forces weighing upon EPL insurers that are impacting their attitudes about the coverage and the terms and conditions under which they'll offer it, Cunningham and other experts point out.
For example, Cunningham says that the plaintiffs bar, in general, has focused more squarely on the employment practices arena, with multiparty and class-action litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute.
When a person begins a civil lawsuit, the person enters into a process called litigation. on the rise.
He likewise reports that a visit to cyberspace can easily locate Web sites that specifically target Fortune 500 companies, providing a forum for disgruntled dis·grun·tle
tr.v. dis·grun·tled, dis·grun·tling, dis·grun·tles
To make discontented.
[dis- + gruntle, to grumble (from Middle English gruntelen; see employees to vent about their company. These electronically posted missives, as well as inappropriate internal company e-mails or misuse of questionable sources gleaned from the Internet, "creates a whole new tool that plaintiffs lawyers can tap into to get evidence," Cunningham observes.
Workplace Safety Issues
The terrorist attack on the World Trade Center and Pentagon has also created the specter of new EPLI claims arising out of safety-related concerns in the workplace, adds Jeff Tanenbaum, senior shareholder in the employment and labor law labor law, legislation dealing with human beings in their capacity as workers or wage earners. The Industrial Revolution, by introducing the machine and factory production, greatly expanded the class of workers dependent on wages as their source of income. firm Littler Mendelson, San Francisco.
Following September 11, says Tanenbaum, growing numbers of workers are wondering if employers are taking sufficient steps to protect them. Increasing anxiety about bioterrorism, sparked by the identification of anthrax anthrax (ăn`thrăks), acute infectious disease of animals that can be secondarily transmitted to humans. It is caused by a bacterium (Bacillus anthracis spores at several federal and media offices, also holds the potential to impact the EPLI arena. For as Tanenbaum points out: "To the extent an employee becomes sick--that would fall under workers' compensation workers' compensation, payment by employers for some part of the cost of injuries, or in some cases of occupational diseases, received by employees in the course of their work. . But the fear of becoming sick may fall outside of workers' comp." Alleged mental anguish When connected with a physical injury, includes both the resultant mental sensation of pain and also the accompanying feelings of distress, fright, and anxiety. As an element of damages implies a relatively high degree of mental pain and distress; it is more than mere disappointment, , an employee's refusal to perform certain functions (such as opening mail or traveling by airplane) resulting in termination or transfer, alleged harassment of employees of Islamic faith--these are just some of the byproducts of September 11 likely to blossom into employment practices litigation, he adds.
Another potentially troubling Catch 22 for employers arising out of the terrorist attack centers around their responsibility to provide employees with a safe and secure working environment, Tanenbaum continues. For while some employees may demand increased security, others may allege privacy violations or discrimination if such security procedures are not applied uniformly across the entire employee population. While no one can yet quantify the potential impact of these potential claim scenarios on EPLI loss experience going forward, Tanenbaum is convinced that "down the road, litigation will result from the actions employers are taking right now."
While new potential exposures deriving from the events of September 11 may be garnering the most speculation among insurers, the more traditional sources of claims also continue to whittle away Verb 1. whittle away - cut away in small pieces
wear away, whittle down
damage - inflict damage upon; "The snow damaged the roof"; "She damaged the car when she hit the tree" at the product's performance, experts say.
For example, Tanenbaum reports an increase in ADA Ada, city, United States
Ada (ā`ə), city (1990 pop. 15,820), seat of Pontotoc co., S central Okla.; inc. 1904. It is a large cattle market and the center of a rich oil and ranch area. (Americans with Disabilities Act Americans with Disabilities Act, U.S. civil-rights law, enacted 1990, that forbids discrimination of various sorts against persons with physical or mental handicaps. ) claims, observing that a backlash on the state level has in some instances broadened the federal definition of what constitutes a disability under ADA. "Definitions by some state legislators are often surpassing the ADA in terms of coverage," says Tanenbaum, with the end result being greater potential liability facing employers and their EPL insurers.
Claims arising out of the treatment of employees who fall under the protection of the Family and Medical Leave Act (FMLA FMLA Family and Medical Leave Act of 1993
FMLA Feminist Majority Leadership Alliance ) are also a significant source of EPLI claims, adds Jim McSherry, president and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of the workplace HELPLINE, a Boston-based company offering virtual human resources consulting primarily to EPLI employer policyholders.
Small and midsized employers are more vulnerable to running afoul of their obligations under FMLA, observes McSherry, noting that "it's a complicated issue. Employers have many technical questions about the act as well as about how they should deal with (employee) disabilities, pregnancy, and intermittent leave. They also need to know what their particular states require, which may be different (from the federal statute). They can't act arbitrarily."
Additionally, McSherry reports that employers continue to wrestle with dilemmas surrounding the legality of withholding pay as a form of discipline and under what circumstances an employee should be deemed exempt or nonexempt. The Fair Labor Standards Act Fair Labor Standards Act or Wages and Hours Act, passed by the U.S. Congress in 1938 to establish minimum living standards for workers engaged directly or indirectly in interstate commerce, including those involved in production of goods bound , which addresses these and other key employment practices issues, continues to be a major source of EPL claims, McSherry adds.
An employer's responsibility to military reservists, often not fully understood by employers or perhaps deemed irrelevant, now becomes more glaring, McSherry cautions, particularly since the terrorist acts of September 11 prompted President Bush to mobilize some 35,000 military reservists into active duty. While employers have always been held to specific responsibilities under the Uniformed Services Employment and Reemployment Rights Act The Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA) was signed into law by President Bill Clinton on October 13, 1994 to protect the civilian employment of non-full time military service members called to active duty. (USERRA USERRA Uniformed Services Employment and Reemployment Rights Act of 1994 ), "there is no better time (than now) to understand your organization's obligations under the act," stresses HELPLINE.
As EPLI insurers look to the future, there is a cloud of uncertainty that hovers over the coverage.
Heather Fox, assistant general counsel and vice president, National Union Fire Insurance of Pittsburgh, Pa., a member company of the American International Group
American International Group, Inc. (AIG) (NYSE: AIG; TYO: 8685 ) is a major American insurance corporation based in New York City. , notes that while frequency and severity have both taken a toll on EPLI, both current and looming exposures could further erode its performance going forward.
According to Fox, whose company specializes in management liability products, insurers that have failed to maintain "retention integrity" are already seeing unfavorable loss ratios. Premium rate increases and higher retentions are inevitable if insurers hope to be profitable, says Fox, cautioning that those insurers who fail to make significant adjustments will be hit hard.
Risk managers, she stresses, must adapt to a changing environment, while those who have resisted purchasing EPLI would be well advised to acquire the protection, even if they are no longer operating in a buyer's market A Buyer's Market is the second novel in Anthony Powell's twelve-novel series, A Dance to the Music of Time. Published in 1952, it continues the story of narrator Nick Jenkins with his introduction into society after boarding school and university. . "Those risk managers who believe everything in their company is perfect--that they've instituted good employment practices policies and training--should still obtain EPLI," cautions Fox.