In this soft market, opportunities are once again strong for employment practices liability insurance (EPLI) program business. However, this time there are markets that have matured with the product and are in a position to structure excellent EPLI programs.
In 2007, wholesale and retail brokers, insurance carriers and associations will be offered EPLI programs by underwriting managers and reinsurers. It is important for everyone in the food chain to understand what the attributes of a good EPLI program are, so that a program structured today can endure in this market and the next market turn. Prudent professionals want a program with longevity and do not like the hassle of replacing a program.
One of the problems over the years with EPLI is that it is not a compulsory product purchased by all or most insureds. This results in serious issues of adverse selection. In addition, the number of buyers shrinks in a hardening market.
In a softening market, opportunities for sales of non-compulsory specialty insurance products increase for two basic reasons: 1) Businesses and professionals are receiving reductions in premiums for renewals of their workers’ compensation, BOP, property (in non-wind areas) and professional liability products. This leaves room in insurance budgets for the purchase of discretionary insurance products like EPLI. 2) Insurance carriers are finding themselves in hand-to-hand combat fighting to keep their business in a fiercely competitive pricing environment, so they are making decisions on which products to offer their clients in order to reinforce their core business.
EPLI and programs
One of the ways to obtain underwriting spread in a softening market is with program business. So what are the attributes of a good EPLI program?
Target group or market.Whether it is an industry affinity group, a producer’s renewal book, a carrier’s entire book of business or a subsection, a worker’s compensation safety group or any other group of prospects, it is important that the target group is identified clearly. This will help the market in tailoring a program appropriate to the prospects and it will define clear parameters for sales and marketing efforts.
Product. EPLI used to be a product with an ever increasing laundry list of covered exposures. This constant change in product offering has leveled off substantially and most wordings out there are, in large measure, equally broad. An EPLI policy should cover allegations made by an employee against an employer of discrimination, harassment and wrongful termination. No matter how long a definition of wrongful act an EPLI policy contains, these three exposures are the basic elements.
Full (unknown) prior acts coverage is generally available and provides immediate coverage. Coverage for allegations of discrimination or harassment coming from non-employee third parties is also generally available and should be considered for retail exposures. For example, any restaurant EPLI program will need to include coverage for third party claims or it may not be competitive in the marketplace.
Service/distinction. EPLI is not a compulsory product like workers’ compensation, property or professional liability; therefore, it needs to be sold. The selling process needs to be streamlined as much as possible. There are numerous innovative approaches in the marketplace to accomplish this, including automatic inclusion of EPLI with a carriers core product, assumptive sale where sale of EPLI with the core product’s renewal is assumed and an insured needs to check a box if they do not want the product, and self-raters that provide pricing if an applicant answers questions correctly. Of course, there is also individual underwriting with a focus on quick decision making and turnaround. Service will often be the determinant of the market selected — the race is going to the swift.
Risk management. Risk management is readily available in the EPLI marketplace. Options include hotlines where insureds can call attorneys for advice on employment practices issues, Web site libraries of sample human resources policies and procedures, FAQs, etc. The better programs offer risk management and include it for no additional charge to the insured. Caveat: quality of risk management widely varies. This is a potential area of genuine product differentiation.
Claims. This is one of the most important factors in the success of an EPLI program. Poor claims handling by defense counsel or by coverage counsel on behalf of underwriters have led to the demise of several programs. Be sure that the market has experience, established claims handling procedures and counsel, so that there’s a chance the program will be successful.
Profitability. This is not just a mantra. Underwriting profitability is the key to competitive rating and program stability, and it is important for everyone in the food chain, including the insureds, to understand this.
Security/stability. EPLI is a class which has had multiple participants, many for short periods or volatile profiles. Those interested in program stability should carefully avoid obviously fronted programs and look for security either of the market or the managing general underwriter before investing time, resources and reputation in the class.
Experienced operators can provide a stable market and pricing for a program, which can endure through future cycles.
Rich Robin is president of NAS Insurance Services Inc., the original market/innovator of employment practices insurance. Robin oversees underwriting, marketing, business development and operations for NAS Insurance. He can be reached at 818-808-4477 or rrobin@nasinsurance.com.
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