The employment practices liability (EPL) insurance market in the United States continued to see premium and retention increases in the range of 10-25% through 2021, as underwriters sought to maintain profitability in response to increased losses.
According to a Gallagher market overview, primary EPL insurer appetite was limited to approximately 10-15 insurers in 2021, and most were not interested in writing new EPL business. Most insureds in the marketplace experienced increases in retentions (especially in higher risk states, like California and Illinois), and most experienced rate increases of 10-25%, unless they had an increase in employee count, claims paid, or other risk factors such as pandemic-related layoffs, which resulted in premium increases of more like 25-50%.
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“What we’ve seen in the last five years is the creation of entirely new categories of employment litigation that can affect companies,” said Emily Loupee, area senior vice president at Gallagher. “A lot of it is stemming from the social movements that we saw with #MeToo, #TimesUs, and Black Lives Matter, and then the COVID-19 pandemic added a whole new category.
“I would describe the EPL market as being hard in 2021, not the degree of hardening that we saw in directors and officers (D&O), and certainly not to the degree that we’re seeing in cyber right now. But there was an environment across the board of premium and retention increases [in response to the EPL risk environment].”
As EPL underwriters shored up their risk selection and capacity allocation, overall market trends did start to improve through 2021. New insurer capacity entered the marketplace, which has improved market competition and general conditions to the extent that premium increases are expected to be flat to +10% for EPL renewals in 2022.
However, it’s important for EPL underwriters, brokers, and insureds to remember that EPL is quite a long-tail line of business, Loupee stressed. Claims can sometimes take four or five years to come into fruition, so while the underwriting conditions in the EPL market have improved at the onset of 2022, there’s still a risk of COVID-related litigation landing down the line, which could cause the market to harden once again.
“Regarding the pandemic, we have seen some litigation end up in payouts having to do with vaccine mandates and workplace environment,” said Loupee. “A lot of this has been OSHA related, with employees complaining: ‘My company’s forcing me to go back, I don’t think it’s safe, they’re not providing masks to the extent that I need them, they’re not providing a clean environment, or the distancing isn’t there.’ We have seen some of those lawsuits come through.
“Retaliation is still one of the top allegations in employment claims. You may have an employee that maybe spoke up about: ‘I don’t feel safe, or we’re being made to work an environment that’s not COVID safe,’ and then they get fired, and the allegation is: ‘I got fired because I said something.’ We’re seeing that retaliation piece a lot more with issues related to COVID, such as the workplace requirements, the changing environment, and employer mandates.”
The Jackson Lewis COVID-19 Employment LitWatch tracks complaints filed in federal and state courts nationwide that allege labor and employment law violations related to COVID-19. As of November 24, 2021, almost 4,000 pandemic-related EPL complaints were filed, all of which have the potential to progress into actual litigation and large EPL claims.
While complaints related to COVID-19 have increased, charges filed with the Equal Employment Opportunity Commission (EEOC) – which is the federal agency responsible for employee rights in the US – remained stable in 2021, with no significant increase in the number of charges or resolutions. That’s “a positive trend,” according to Loupee, but she said it’s still a market “in flux” and vulnerable to large losses down the line.
Aside from COVID, other changes or emerging risks in the EPL market include: an increase in age discrimination-related losses; new exclusions for biometric privacy acts, especially in Illinois and California; new legislation removing forced mediation, which will give employees more power to file a lawsuit against their employers; and continued wage and hour coverage challenges.
“At Gallagher, we always like to say it’s important to have an expert broker holding your hand through the process,” said Loupee. “It’s so important to have an expert who is versed in employment practices and can help you through these challenges. Communication – talking to your insurance companies and your broker – having that door open is the best course of action in any EPL situation. If you don’t know, ask a question, and that way, we can deal with everything and have the best possible outcome.”