Employment Practices Liability Market Conditions

Introduction

In 2021, we continued to see premium and retention increases for Employment Practices Liability (EPL) insurance in the range of 10%–25%. Early signs are showing that we may have reached an inflection point in this trend and that we can expect a flat to 10% increase for EPL renewals in 2022, all else stable. Companies that have already experienced large premium and retention increases or "corrections" can expect much less change in 2022, and flat renewals may be possible for companies without large growth or paid claims. The Equal Employment Opportunity Commission (EEOC) which is the federal agency responsible for employees rights in the United States, has seen flat to decreasing trends in the number of charges filed,¹ which indicates an overall improvement in the environment. However, EEOC data lags actual litigation payments, which can occur many years after an EEOC charge is filed, and it may not include some claims covered by an EPL policy, such as those related to COVID-19. The leading insurers continue to report increasing severity in both defense costs and settlements and many report still needing further increases in premium and retention in order to maintain a profitable EPL book.

What we saw in 2021

• Primary Employment Practices Liability insurer appetite was limited to approximately 10–15 insurers. Most insurers were not interested in writing new EPL.
• Most insureds experienced increases in retentions. Higher risk states such as California, Texas, Illinois, New York, Michigan and Florida can expect to see minimum retentions in the $100,000 to $250,000 range, even for companies with less than 100 employees.
• Most insureds experienced premium increases in the range of 10%–25%, all else equal. Any increase in employee count, paid claims or other risk factors such as layoffs saw increases in the range of 25%–50%.
• In 2021, underwriters continued to need increased premiums and increased retentions in order to maintain profitability in response to increased losses. We saw that trend improving through the year as the overall market trends improved with new insurer capacity, increased appetite, improved underwriting results.

Current state of the market

• The premium and retention increases in 2020 and 2021 have improved underwriting results, and new insurer capacity added has improved market competition so that premium increases are lower and some retentions are remaining the same with no changes. We will see some flat renewals in 2022 with these improved conditions.
• Some insurers are restricting coverage for biometric privacy acts, especially in Illinois and California. Most insurers also exclude privacy-related allegations, which require a separate Cyber policy.
• The EEOC enforcement activity was stable with no significant increase in the number of charges or resolutions. With COVID-19, there is also a need to follow often evolving requirements issued by the Occupational Safety and Health Administration (OSHA) related to workplace safety and vaccine requirements which are leading to new types of EPL litigation. Currently, the constitutionality of requiring employees to be vaccinated is pending the resolution of several lawsuits and private actions continue to be brought in the meantime.

What we are watching

• The most significant cost drivers for EPL are the increased frequency and severity of lawsuits related to social movements and related social inflation (sentiment favoring plaintiffs versus corporations which lead to larger and faster settlements and larger attorney's fees). Secondly, COVID-19 introduced a new category of EPL claims. As of November 24, 2021, almost 4,000 COVID-19-related EPL complaints have been filed.²
• Mega losses that impact the whole EPL insurance marketplace are keeping pressure on premiums and retentions. According to one law firm tracking notable EPL settlements, five out of the top fifteen settlements occurred during 2021.³ Those allegations include race discrimination, disability discrimination and wrongful termination.
• The majority of COVID-19-related EPL complaints were brought in California, with 1,059 or more than 25% of the total national number of cases.² California remains the highest risk state for EPL losses, and the premiums and retentions for those with employees in California will remain elevated with less competition and increased pressure.
• Age discrimination-related losses are increasing. The number of EEOC charges related to age discrimination doubled from 1990–2017, and the expectation is that the trend will continue with the aging workforce.¹ Advisen's loss data shows that the median loss cost is also increasing, from $110,000 in 2015 to $250,000 in 2015–2020.⁴

Looking ahead

• We anticipate some continued pressure on premiums and retentions in the range of 0%–10% increase, but many insureds will have flat renewals with improved market conditions.
• Increased number of insurers allows for improved competition, and past rate increases improves insurer results and increases the appetite of existing EPL insurers. However, COVID-19, social movements and social inflation continue to impact EPL losses, especially given that EPL cases may take years to reach settlements or judgments. Improving EEOC data is promising but not likely to immediately impact the EPL marketplace.
• Coverage remains substantially consistent and broad, with some new exclusions added for privacy and biometric data as well as some insurers taking more restrictive coverage positions.
• Wage and Hour continues to be a large exposure for most companies, but it is not covered under an EPL insurance policy. Very few insurers can offer a small sublimit in some cases, and there are insurers in Bermuda that can offer a stand-alone Wage and Hour policy.

Conclusion

• In order to obtain as much benefit as possible from the improving Employment Practices Liability marketplace, and depending on the details of the placement of the risk, insureds should consider whether a full marketing is in order at renewal in 2022. Insureds should also put a lot of weight on the relationship with their current insurer due to increasingly difficult claims payment negotiations with most insurers.
• There is a wide disparity in how insurers adjust claims. A more expensive carrier may be much more willing to agree to your choice of counsel, higher approved rates, more coverage and less arguments.
• Gallagher's internal claims advocacy group is experienced in assisting insureds in claims negotiations and maximizing insurance reimbursement.
• Insureds should work with their broker to understand the EPL coverage and limitations prior to having a claim. Gallagher has a vast network of specialists who understand your industry and business and have access to the best solutions in the Employment Practices Liability marketplace for your specific challenges.

Please note: A client's risk profile is the primary variable dictating renewal outcomes. Loss experience, industry, location and individual account nuances will also have a significant impact on these renewals.

Sources:

¹ Enforcement and Litigation Statistics | U.S. Equal Employment Opportunity Commission (eeoc.gov)

² COVID-19 Employment LitWatch | Jackson Lewis

³Kaufman Borgeest & Ryan LLP, Employment Practices Liability, Settlements and Verdicts in Excess of $2 Million (October 2016 to October 2021)

⁴ Advisen.com loss data and 2019 Hiscox Ageism Workplace Study