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Pandemic, Social Issues Create EPLI Market Restrictions

The insurance market began to tighten in the specialty lines well before coronavirus arrived to further disrupt rates, capacity and carrier appetites. In November 2019, Sentinel published its annual insurance market forecast for 2020, projecting rate increases of up to 10 percent in employment practices liability (EPLI). Who could have known just a few months later, EPLI rates would balloon three-to-five times higher, even for businesses with clean, uncomplicated risk profiles?

These are unchartered waters for many of us in the risk and insurance arena. Hard markets typically drive rates up but leave enough capacity in the market to build new insurance programs and broker competitive renewals. That is not the case in the fallout from coronavirus, as carriers across the board sour their appetite for risks they’ve yet to fully get their arms around. Underwriters have little or no leeway to apply credits, and no choice but to reduce limits and increase retentions.

What does that mean for your business? Let’s take a look at what’s happening in the employment practices line as a result of the pandemic, what your business can do to mitigate the risk of employee claims and lawsuits, and tactics to strengthen your position with carriers.

Potential for Pandemic-Based Claims

In the early days of the pandemic, it was hard for many business leaders to imagine the myriad ways that coronavirus would impact the potential for claims. But remember—risk is assessed in part by weighing the difference between what is possible and what is likely. A whole host of workplace risks that were possible, but perhaps unlikely, prior to the pandemic are now active exposures. A company for whom business was booming prior to March 2020, for example, is now susceptible to a reduction in force; an event that carries substantial risk for employers.

Crisis have a way of upending people and places that typically take great care to honor policy and process. Think about the business manager entrusted with carrying out the company’s return-to-work plan who’s stressed, overworked, and lacking the resources to ensure health and safety standards. You can bet that insurance carriers are thinking about that manager, along with the potential for claims from that manager’s disgruntled employees.

Pandemic-related workplace risks are rising just as fast on the causal side as effect. For some employers, the pandemic is creating problems that didn’t exist previously. For others, the pandemic is bringing long-simmering issues to a full-on boil.

Carriers are reporting an uptick in EPLI claims month over month, as employees begin filing incidents of harrassment, retaliation and wage and hour violations. Industry analysts see the greatest potential for employer losses with wage and hour complaints, given the already great and growing number of workers who say they are being pressured to work without pay on business reopening and continuity plans.

Social Movements, Supreme Court Ruling Carry Additional Implications

The pandemic isn’t the only thing impacting today’s employment risk and insurance marketplace. Social justice movements have picked up tremendous steam, from the highest court in the land to the court of public opinion. Heightened awareness and sensitivity around race-based discrimination stemming from the Black Lives Matter movement is not a straight line to more EPL claims, but legal analysts expect it to empower employees who’ve long wanted to speak out to take action.

The big driver of new claims is likely to be the recent ruling by the US Supreme Court, which makes clear that sex-based discrimination protection under the Civil Rights Act extends to gay, lesbian, and transgender employees. The ruling has major implications on employer liability at a time when many businesses are stretched thin in human resources and compliance.For many businesses, employment practices liability insurance is the first line of defense against these types of claims. Check with your Sentinel advisor to determine the specifics of your business’s EPLI coverage, as these policies are not written on a standard industry form and can vary quite a bit.

Tips for Mitigating EPLI Risk  

So what can you do to reduce your risk of employee lawsuits and keep EPLI rates as low as possible in this hardening market?

  1. Prepare. Your Sentinel advisor will work with underwriters well in advance of the contract term to prepare your risk assessment and put together a detailed, thoughful insurance program. Be ready to answer pandemic-related questions that will likely slow down the underwriting process.
  2. Utilize. The good news about most EPLI policies is they typically contain a host of carrier resources to help your firm control losses, from employee training to consultations with employment law and HR specialists at no additonal cost.
  3. Document. Businesses that are planful and process oriented on human resources will fare far better in the current market. Sentinel’s advice: document everything. Look for gaps in employee policies, internal communications and pandemic-related office procedures, in particular. Once those policies and procedures are made clear and communicated well with employees, document every detail of that effort to shore up your business’s risk profile with carriers.

Questions about Employment Practices Liability Insurance?

Contact Sentinel’s Amelia Bernstein, JD, Senior Director, Specialty Lines

Phone: 919.678.7165   Email: abernstein@sentinelra.com