The employment practices liability (EPL) market is priced like a buyer's market right now, but that pricing is masking a claims trend that's moving in the opposite direction, according to Samantha Rodrigues (pictured), AVP of executive risk at HUB International.
"Overall, I'd say we're probably in a soft or buyer's market, and it has been for a while," Rodrigues said. "But it's interesting, because the underlying environment is getting more complex and complicated. We're very close to – if not already at – a point where we probably shouldn't be in the marketplace we're in. We should probably be trending toward something firmer, because we're seeing signs that a gradual firming is a real possibility."
Read more: EPL insurance isn't just for big US companies, HUB broker says
The gap between pricing and risk, Rodrigues said, comes down to competition among insurers rather than an improving loss environment.
"Right now, the capacity and competition in the insurance marketplace – the buyer's market – is masking that claims situation & deterioration," Rodrigues said.
Because that competitive pricing doesn't reflect claims trends evenly across every account, Rodrigues said underwriters are compensating by scrutinizing two things more closely: an organization's loss history, and the strength of its HR controls, including whether formal policies exist and whether they're actually followed.
"Something you especially can't get away without looking at right now in EPL is loss history, and also an organization's HR controls," Rodrigues said. "Do they have policies in place around any of these things – a harassment policy, a privacy policy? And are they actually using them?"
That underwriting scrutiny, she said, is what ultimately determines how favourable a given account's pricing and terms end up looking, even inside a market that's soft on average.
How much any individual employer actually pays, and on what terms, depends heavily on its specific footprint, Rodrigues said – size, geography, loss history and HR controls all move the needle in different directions for different accounts.
"Are you a small Ontario-only nonprofit with a couple of employees? Are you a medium-sized private company with several hundred employees and a few in the US? Do you have a poor loss history, or do you have poor HR controls?" Rodrigues said. "If you have numerous US employees or poor HR controls, which results in poor loss history, your policy terms probably wouldn't be considered stable or soft. You're going to see that reflected widely, and sometimes substantially, in your terms."
Rodrigues said pricing overall has stayed relatively stable, but individual accounts can still see sharp increases well above that average depending on their specific exposure profile – a scenario she said is becoming more common as the market inches toward firming.
Retentions, or deductibles, are another lever insurers use to manage that risk, and Rodrigues said they can vary enormously depending on jurisdiction. She pointed to California as a particularly challenging exposure in North America, where retentions for California-based claims or employees can run as low as $250,000 and are often much higher, compared to retentions closer to $15,000 for the rest of a policy.
Given that variance, Rodrigues said the most effective thing brokers can do is start renewal conversations early, rather than simply forwarding a completed application to an underwriter without engaging with it first.
"You're definitely getting ahead of your renewals, and you're having really good conversations with your clients about what's going on with them," Rodrigues said. "Where are they now, and where are they going? If a client is at 80 employees but I know they're looking to open a new plant – even if that only adds 20 more people or it’s in the US – that's going to change their EPL exposure."
Preparing clients for what underwriters are looking for, and why, helps them understand the terms they eventually receive, Rodrigues said, even when those terms come with an increase.
Read more: EPL claims go well beyond wrongful termination, broker says
"I'm happy to inform my clients about the worst-case scenario and then succeed and get them better terms than what I told them, so that we're at least all on the same page," Rodrigues said. "Brokers should be aware of what is going on with their clients, where they are, where they're going; and clients should be aware, through their brokers informing them, of what underwriters are looking at and why, and what they can do to make themselves a better risk."
