Hartford Steam Boiler created small-business approach.

Hartford Steam Boiler Inspection and Insurance Co. recently introduced its Portfolio EPL coverage, an employment practices liability program aimed at small and medium-size businesses. The specialty reinsurer's program provides broad EPL coverage and related risk management services. Available to HSB's 200-plus client insurance companies, it's designed to be integrated within commercial package policies written for businesses with 50 or fewer employees.

"If you look at the statistics, just about half of all claims are brought against smaller companies," said Jeffrey C. O'Shaughnessy, assistant vice president for HSB. "Many of our client companies have been hearing from their agents and their insureds that there was interest in employment practices liability policies, but that there really was no affordable, accessible market for the coverage based on their size and scope."

Stand-alone EPL polices with their $1 million coverage limit and the corresponding premium ranging from $3,000 to $10,000 was just too much, O'Shaughnessy said. "These are Main Street-type businesses that are paying anywhere from $1,200 to $2,400 for their entire insurance portfolio, so the thought of paying that much for an EPL stand-alone--and quite frankly, filling out a seven-page application--was just too daunting."

HSB spent more than a year developing this product, including conducting roundtables to gather agents' views. Just a few months after issuing the product, two client companies--Grinnell Mutual Reinsurance and Capitol Indemnity Corp.--agreed to roll it out in 2005, and HSB was conducting discussions with more than 30 other prospects.

Defense costs, included within the limit, make up a major piece of it. "The vast majority of EPL claims ultimately are proven to be groundless or fraudulent, but it's the defense dollars you need to expend to get to that point that can really take a toll," O'Shaughnessy said.

O'Shaughnessy calls the program fairly comprehensive--with a broad definition of claim, insured and wrongful employment acts which include discrimination, wrongful termination and sexual harassment as well as a litany of other itemized allegations. Because it's for the small commercial market, there is no coverage for class actions or third-party liability.

The unusual feature of the program is that HSB essentially underwrites the insurer's book of business. There is no transactional, individual account underwriting as is typically found in the primary EPL market. HSB reviews the client's book for geographic scope and the range of classes within the book, then prices it as a percentage of the client's business owners policy premium, O'Shaughnessy said. "These insurers do not even need to collect employee count. This 10,000-foot view allows us to price the book without them going out and getting that level of detail. Everything is done on a portfolio basis."

This turnkey solution for insurers includes the form, the filing package and the underwriting expertise. HSB ultimately handles the claims and provides claim representation to the insureds through AIG Technical Services, which has extensive experience in handling EPL claims in the market today, O'Shaughnessy said. "They also have access to AIG TS Panel Council law firms that can provide expert EPL legal representation to these small commercial insureds at favorable rates," he said.