Specialty Lines Markets

Tough market

Both competition and claims are on the rise

By Phil Zinkewicz

“The Employment Practices Liability Insurance (EPLI) market is a tough one these days and getting tougher. I’ve been in the EPLI market for about 10 years now, and I’ve never seen more competition and more players getting into the arena. There are companies you never would have suspected of getting into the EPLI market that are moving into the area, such as regional companies and mutuals.”

So says Doug Tobin, assistant vice president and EPLI program manager for CRUMP/BISYS, a managing general agency for specialty programs. The company writes EPLI for small businesses, focusing on firms of 500 or fewer employees. Its average account is between 100 and 150 employees.

And, Tobin points out, this competition is taking place at a time when EPLI claims are on the rise. “The problem is one of frequency rather than severity,” he says. “We’re seeing more claims that are race-related, and also national origin claims. What we do is work with professional legal firms to get the claims that have merit settled as fast as possible.”

Claims are indeed on the rise, according to the Equal Employment Opportunity Commission (EEOC). In its 2007 report, the EEOC offers a snapshot of discrimination charge filings with the agency nationwide. Charges of racial discrimination jumped from 27,238 in 2006 to 30,510 in 2007, a 12% hike; retaliation claims were at 22,555 in 2006 but rose to 26,663 in 2007, up 18%; gender discrimination went from 23,247 in 2006 to 24,826 last year, a rise of 7%; and age discrimination filings rose from 16,548 in 2006 to 19,103 in 2007, up 15%.

Moreover, between 2006 and 2007, disability claims were up 15%, national origin claims were up 12%, and religion claims were up 13%.

“We’re seeing more claims on our books,” says Phil Holderness, senior vice president in charge of the executive and professional liability department for Westrope, the seventh largest commercial wholesale insurance broker in the United States.

“This is happening at a time when rates and premiums are down, retentions are down, and terms and conditions are extremely favorable. It’s a buyer’s market. The market is soft but I’m not sure why it’s soft. I’m not sure there is any rationale,” he says.

Holderness explains that the economy might be playing a role in the increase in claims. “As the economy suffers, there is no question that EPLI exposures increase. We expect more claims in 2008 than we saw in 2007 because of company layoffs, plant closings and wage freezes.”

Westrope focuses on all sizes of accounts, according to Holderness. “We write the fast food chains and the large publicly held accounts where class action exposures exist,” he says. “In order to mitigate the possibility of class action lawsuits when there is a reduction in the workforce, we tell our clients to make certain that no one group is singled out.

“We also have access to a third-party EPLI policy to protect our clients when a third party files an EPLI lawsuit,” Holderness continues. “We also have coverage for our clients who may be sued under the Fair Labor Standards law, which involves hourly wage earners versus weekly salaried workers and overtime issues. The question here is who is entitled to overtime and who isn’t. This coverage, however, only covers defense costs.”

Linda Deiss, a vice president at AVRECO, also says that today’s EPLI market is soft. AVRECO, founded in 1962, is one of the largest independent insurance wholesalers in the United States. It has access to more than 100 insurance companies and specializes in niche business including medical malpractice and professional liability insurance, nonprofit and for-profit directors and officers liability and employment-related practices insurance.

“On EPLI, we’re seeing people buying on price alone and not getting the same coverage,” she says. “The policy we offer is broad, so we’re not always the cheapest. But we offer a better quality product to the insured.”

Matthew Jefferson, underwriting manager for Philadelphia Insurance Companies, says that the EPLI market is particularly soft for larger accounts, $100,000-plus. “There is a saturation of capacity with some new players seeking market share,” he says. “We’ve seen renewals decreases of 5% to 10%, and on new business the price per employee is down even more. We have seen minimum retentions as low as $1,000, although this does not hold true in California.”

Philadelphia currently writes a significant volume of EPLI, and Jefferson estimates that the company is one of the nation’s top 20 carriers in terms of volume. “Our basic, nonprofit form includes third-party liability and defense outside the limit of liability,” Jefferson says.

“On target risks, we further enhance the policy with the use of a Pro-Pak endorsement that expands the definition of insured to include independent contractors and offers aggregate retentions,” he continues. “Philadelphia offers the coverage on a monoline basis or in combination with our D&O customers.”

Asked how the economic downturn is affecting the EPLI market, Jefferson said only minimally at this time. “Since businesses are just now really starting to feel the effects of the economic downturn, I don’t suspect we’ll see an increase in wrongful termination claims for a couple of more months. However, due to layoffs and work force reductions that are resulting from this downturn, I believe there will be an up tick in the number of suits filed,” he says.

According to Jefferson, themost important trend currently pervading the EPLI market is coverage for violation of the Fair Labor Standards Act or wage- and hour-type claims. “The focus has been on employers not properly classifying their workforce (exempt or non-exempt) or simply ignoring the law,” he says.

“Damages sought are for back pay of overtime. Historically, it has been excluded under EPLI policies, but as of late the market has been putting pressure on carriers to provide some type of carve back on the issue,” Jefferson continues. “Many carriers are offering a sub-limit for defense costs. A few are offering defense and indemnity.” *