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[00:00:00]  James Walsh 

There's a rise in the use of AI tools from pro se or unrepresented claimants to actually use those types of tools to draft and submit EPL claims and EPL disputes on their own without representation. Employers, they can use automated or AI-backed or influenced tools to screen potential candidates, to manage performance of existing employees, and help them make workforce decisions. 

[00:00:28]  Paul Lucas 

Hello everyone. Welcome to Insurance Business TV and an EPL special. In this edition, we're going to zoom in on the EPL market, why it's tightening, what brokers should look for, and how the risks are evolving. And to take us through it all, we welcome James Walsh, President of eRisk, a nationwide company. James, welcome to Insurance Business TV. 

[00:00:47]  James Walsh 

Thank you very much for having me. Happy to be here. 

[00:00:49]  Paul Lucas 

So, James, give me a little bit of an overview, if you don't mind. What do you think is driving the increased complexity in EPL? And indeed, why does it demand more attention from wholesale brokers today than perhaps it did in the past? 

[00:01:02]  James Walsh 

Yeah, thank you. So what we're finding is that the type of incidents that EPL covers — discrimination, wage and hour disputes, harassment, wrongful termination claims — that still remains constant. What we are seeing changing, what has changed pretty significantly in the last 18 months to 2 years, is an uptick in frequency of those reported instances and the environment around them causing more severity. There are a few key factors I just want to highlight that I think really speaks to that specifically. So first and foremost, we are seeing a broader legal definition of disability under the Americans with Disabilities Act. We now have both physical and mental disabilities must be accommodated by businesses of all types. We're seeing a trend and a change of the increase of the amount of pre-litigation demand letters as a form of submitting suits from plaintiffs. What this allows is for more testing the waters, essentially, by claimants and their counsels while allowing them to actually avoid litigation. This allows the matters to remain private, allows them to stay out of the public eye. What we're also seeing is there's a rise in the use of AI tools from pro se or unrepresented claimants to actually use those type of tools to draft and submit EPL claims, EPL disputes on their own without representation. These unrepresented claimants are not guided by the usual types of legal expertise, but nonetheless, the defense counsel and the carriers have to still provide a significant amount of oversight of defense costs and effort to still respond to and handle these types of claims. And lastly, we're still seeing a significant amount of nuclear verdicts still going on. That plus the rise of social inflation is just really causing more expectation of larger demands and larger types of settlements when claims are submitted. So that generally tends to be a more common strategy from claimants and their representatives. What we find is that the wholesale brokers, in this type of market and in this line of business specifically, they really play a valuable role in translating these types of market conditions into a clear and defined placement strategy. Those types of brokers in the wholesale space tend to have specialisation and experience in the EPL line of business. And what they can do is they can provide agents and insureds and brokers with guidance on why pricing, why underwriting, and why coverage are all changing. 

[00:03:44]  Paul Lucas 

Let me pick up on that with you a little bit, if I don't mind, because of course the EPL market is tightening. So I think some of the points you raise there are really important — because carrier selection now, it's more critical than simply finding the lowest price, isn't it? 

[00:03:57]  James Walsh 

Yeah, I would say so. I would agree that a line like EPL, the claims handling philosophy and the underwriting discipline around it are just as consequential as the premium that's being paid for the policy itself. What we're seeing, what we're acting on, what we're seeing from our competitors as well, is that the EPL market is selectively hardening. It's not a universal and complete hardening across all coverages, all lines, all risks. Responsible carriers right now, they aren't pulling back across the board. What they're doing is that they're repricing where exposure has genuinely deteriorated, but they're still committed to the line of business overall as a growth engine and a part of their underwriting book of business. If you're chasing a low number from carriers that don't adequately price the risk, that's a major risk as a business and as a broker. When the cycle turns, those types of carriers, those types of markets that did inadequately price the risk — generally those are the ones that are likely to retreat first and foremost when the market really does get very, very difficult. Also, if you're placing risk with that type of carrier that is inexperienced or slow to respond to those types of claims, it could turn a pretty standard or an expectedly simple EPL claim into a much messier and more costly and expensive problem. And who's left with that problem at the end is the insurer themselves with a risk or an exposure that was not properly covered, and a broker that is their representative that has to clean up that problem. So really, brokers and insurers themselves need to ask themselves not just how much I'm being charged on this quote and for this risk, but: is the carrier I'm looking to partner with to buy this coverage from reputable? Are they experienced? Is the longevity there? And do they understand what I need to ensure that I'm going to be protected when the time comes? 

[00:05:50]  Paul Lucas 

Let's zoom in a little bit on those risks if we can. Of course, workplace risks are evolving rapidly, from shifting employee expectations to the growing use of AI and workplace technologies as well. So which emerging EPL exposures would you say are perhaps the most concerning today? And indeed, how should brokers be helping their clients to prepare for them? 

[00:06:11]  James Walsh 

Well, a couple things I would speak to on that. The use of AI tools in interviewing, in hiring and screening, is definitely a rising concern that we're seeing in the industry right now. Right now employers can use automated or AI-backed or influenced tools to screen potential candidates, to manage performance of existing employees, and help them make workforce decisions. Now, the use of these tools may — rightly or wrongly — be accused by one plaintiff or a group of plaintiffs of being selectively biased or having some inherent bias built within them. As a response to that, we're seeing a number of jurisdictions right now actively implementing bias audits of these types of employment decision tools. And we're already seeing a number of increased litigation trends that are testing these theories and testing these types of regulation. I'd also say that the general uncertainty and changes in the economy that we're dealing with right now is creating significant new instances of layoffs, reduction in force, and restructuring. And historically, and still to this day, when we see that type of employment environment, EPL claims tend to historically increase in both frequency and severity. So prepare for this. Brokers really need to have good and clear conversations with their actual buyers or prospective buyers. They need to help them document their employment practices overall. If they are using any AI tools, that needs to be clearly outlined, and they're helping them ensure that there is still human oversight that is highly involved with the decisions being made by those AI tools. Employment handbooks and the policies that they put in place for their employees to follow — are they up to date? Are they taking into consideration all the new regulations, all the new laws, all the new rules that companies need to make sure they take oversight of? Our clients who are really showing the strongest governance are the ones who are going to be best presented and get the best coverage and terms from the best carriers. 

[00:08:27]  Paul Lucas 

Claims frequency, severity — that's rising. So what would you say separates the carriers that can remain committed to the EPL market through different cycles from those that might find themselves pulling back when those conditions become a little bit more challenging? 

[00:08:42]  James Walsh 

Yeah, there are a few core things — nothing earth shattering, but worth reminding the market what is really important when it comes to this. So disciplined underwriting, focusing on underwriting profitability more so than top-line growth as the core strategy. Making sure you actually have specialised EPL expertise in both the underwriting and the claims handling at the carrier that's providing the coverage. That the carrier itself has data and experience in underwriting that line of business so they can be priced and covered adequately. That that carrier and that market has been in the market for the long term, that they have a long-term commitment to supporting that market, to making sure it grows and thrives and succeeds, and that it has the financial strength, the financial rating that signals operational stability to really withstand volatility as and when it comes. If they understand that EPL is a long-term specialty line that should be supported, underwritten correctly, and provided to insureds — that will help them maintain long-term presence and continuity. 

[00:09:55]  Paul Lucas 

I think you've actually touched on some of the points I was about to raise with you, James, because I was going to say: what should brokers be looking for beyond pricing and coverage terms to ensure that they are placing business with a long-term reliable partner? I imagine it's a lot of what you've just said there. 

[00:10:10]  James Walsh 

Yeah, absolutely. Some of it bears repeating. Track record — how long has the carrier been writing EPL? How have they behaved through changing markets before? If they've been consistent and in the market for quite some time, that tends to be a future predictor of good behaviour. Do they have claims handling expertise and reliability? When those claims come in, has there been experience on the broker side of saying, yes, this is a carrier who understands how to handle an EPL claim and will support you and make sure it gets resolved correctly. Is the coverage breadth that you're looking for — and that's being provided by the carrier — market standard, or better than market expectation? Are the traditional perils still being covered affirmatively, but also are the emerging risks being affirmatively dealt with? Is the wording there in a way that makes you comfortable and believe you are getting the best coverage you can get? I'd also say: the responsiveness and the clarity of the underwriting and the servicing teams. You should be dealing with a well-staffed and well-experienced team that knows how to write this business and is staffed appropriately and trained correctly to really respond to this line of business quickly and adequately. And again, lastly, the financial strength behind the paper — that really provides everyone with the sense of peace they need. 

[00:11:36]  Paul Lucas 

Talk to us a little bit about eRisk as well, James, if you don't mind. Just tell us how it manages to support wholesale brokers when they're navigating today's EPL challenges, and indeed, what advantages would you say in general that a specialist underwriting approach can bring when helping clients to manage what are, of course, increasingly complex employment-related risks? 

[00:11:59]  James Walsh 

Yeah, so eRisk — we work, we always have worked, and we will always work exclusively with wholesale brokers. We built our business model and our operations around that. Those are the markets that access specialty line business and use wholesale brokers to access that. That's the market we serve, and that's the market we represent. The underwriters that we have, the underwriters that we train, the underwriters that we look to hire — they bring specialised experience in EPL as well as management liability and professional liability, so they know how to underwrite those lines of business, but also they know how to work with the distribution model and the distribution partners that handle those types of businesses and those types of lines of coverage. It allows us to use the proprietary data we have, to share that in a way that actually brings a clear and adequate price to those brokers, as well as a product and the coverage that they can sell specifically as a wholesale market. What we also do is invest in technology to really make sure that we can speedily allow business to be done, allow us to be faster, more accurate, easier to do business with — which allows us to do that in a way that doesn't prevent us from still having the personal touch and the relationships with that type of market. And it really should be said that there's stability in the things that we do and the way we do business. eRisk as an entity has been underwriting EPL as one of the market leaders for nearly three decades now. And we have the financial strength of Nationwide to really make sure our brokers have a sense of peace and financial strength in presenting our option to their markets and to their clients. So really, the message is still simple: we're wholesale only. We believe we're a specialist, and we believe we have one of the most well-rounded and most experienced models to bring to the wholesale market.

[00:14:00]  Paul Lucas 

Yeah, great thoughts, James. Indeed, fantastic to have you with us. Remember, anyone wishing to learn more about the EPL space can head over to eriskservices.com. And for more experts just like James, well, keep it right here on Insurance Business TV.