Practice Makes Perfect
Once the domain of large clients,
employment practices liability coverage is trickling down. A
specialist can help retail brokers find the right
There’s no question that economic conditions influence
employment liability trends. While evidence is conflicting at
best, there are those who firmly believe the connection between
profit and loss and employee sensitivity is very real. The U.S.
Equal Employment Opportunity Commission has been awfully busy
since 2007—the genesis of an explosion in discrimination
claims that continues today.
Employment-related risk is certainly not new, and the
largest organizations have been buying employment practices
liability (EPL) insurance to cover that risk for at least a
decade. However, the evolution of employment law, a more
aggressive plaintiffs bar, and other factors continue to force
a broader range of employers—and the insurers and brokers
who serve them—to adapt.
Phil Holderness, senior vice president of wholesale
brokerage Westrope’s Executive & Professional
Liability Department, is a witness to the evolution. He grew up
in what he calls “the non-EPL era,” when the only
coverage available for any kind of employment practices
liability might be found in a directors and officers liability
policy. “EPL was introduced in London in the late 1980s,
but we didn’t really see it in the mainstream until the
mid- to late ’90s,” he says.
The few carriers involved in the early EPL scene primarily
served Fortune 500 companies. “The underwriting strategy
was always ‘big,’” he says.
Big insureds, big limits and big retentions for big claims.
“What they’re really worried about is the $30
million or $40 million class action for age discrimination,
etc.,” he says. Retentions were generally set at seven
figures. “With retentions this large, it’s not
unusual to see limits of $150 million to $200 million,”
While large placements are a specialty for Holderness and
his team, he explains that businesses with fewer than 1,000
employees are experiencing the most growth in EPL, and in the
last five years, organizations with fewer than 300 employees
have exploded onto the scene. “These businesses are more
concerned with single-plaintiff claims,” he says.
“They have begun to realize that a single claim could
damage an entire year or worse.”
These businesses are fueling growth of package-type policies
that include EPL, D&O and fiduciary liability coverage.
They typically buy a combined single-limit policy with a
“reasonable retention, somewhere in the four figures
neighborhood,” he says. “From where this was years
ago, when it wasn’t affordable, it has become affordable
for all employers.”
Patrick Hanley, president of San Francisco-based Socius
Insurance Services, portal to the Lloyd’s “Empower
EPL” program, agrees. “Pricing continues to soften
for most insureds,” he says. Where previously only a few
markets would quote retentions of less than $25,000 to $50,000,
Hanley now sees more markets that will drop retentions to as
low as $5,000 to $10,000.
Wholesalers are in an excellent position to help retail
agents and brokers increase profitability and retain clients by
assisting with oft-misunderstood EPL placements. Market access
to a broader range of insurers is certainly one advantage. But
consider market conditions, Hanley says. “As an elective
coverage, the decision to purchase EPL is sometimes tied to
total insurance costs. When the market is tightening and price
is up, insureds that should buy EPL often do not… In a
softening market however, when retail brokers are delivering
reductions in the insurer’s workers comp, GL, auto, etc.,
it makes the idea of buying a new coverage that they’ve
discussed for years with their broker much more
Many wholesalers have found success by making EPL education
a priority in their conversations with retailers.
“EPL is certainly a vehicle to fill some holes,”
says Anthony “Tony” Strianese, president of
Peachtree Special Risk Brokers and regional executive vice
president of Brown & Brown. An effort to educate retail
partners about EPL risk and products seems to be paying off.
“We’ll write twice as much in ’08 as we did
in ’07,” he says.
Holderness believes the breadth and complexity of EPL risk
makes working with a specialty wholesaler essential. Many
exposures, such as wage/hour and illegal alien coverage, are
potential killers yet remain nonstandard, he says.
There’s also the issue of venue, which he believes
provides an advantage to brokers with a more national view of
“Certain states concern underwriters more than others.
Maybe it’s because there are more plaintiff’s
attorneys, more sympathetic juries or more favorable employment
laws,” he says. “The truth is that it is more
difficult to underwrite a risk located in certain
venues.” These include California, Florida, New Jersey,
parts of Michigan and parts of Texas.
Retailers going direct are in danger of falling into a
one-size-fits-all trap. “If you aren’t doing it
day-in and day-out, you won’t know the nuances that an
expert does,” he says. “We know EPL because
we’ve lived through it since its beginning.”
History shows that employment trends will improve, and most
agree this will help calm employment-related risk. Until then,
specialty wholesalers are standing by.
Amrhein is wholesaler editor.