After almost five years of continuous claims in the employment practices liability insurance (EPLI) segment, rates have started going up and agents and brokers now have another hurdle when it comes to convincing small and medium-sized businesses to buy the coverage.
“There is a higher cost of defending claims. Defense attorneys are asking for higher rates to defend them,” says Lynette Lyngaas, vice president of employment practices liability and management liability for Monitor Liability Manager in Rolling Meadows, Ill. “In addition to that fact, I think in this economic environment the investment income has not been there for companies to offset their loss ratios. So I think that has been a driving factor as well.”
The rate increase is still only a modest six to seven percent according to those who specialize in this industry, but because small and medium-sized enterprises (SMEs) are still in recovery or survival mode, any increase does not help the cause for agents who focus on this segment.
“Companies with 500 employees buy EPLI,” says Glenn Clark, CEO and president of Rockwood Programs Inc. in Wilmington, Del. “A smaller business is struggling for every nickel and EPLI coverage is not something they have to have to be in business. They have to be convinced of the need.”
Clark says this is why part of Rockwood’s focus with its new EPLI product is to teach insurance agents how to methodically sell the coverage to the SME segment. The MGA launched the new program in June 2012 with Protective Specialty after its one year non-compete clause with Houston Casualty expired in April.
Clark, who has specialized in EPLI since 1996, says Rockwood has built a completely new policy form that features an expansive definition of what an employee is – including full-time, part-time, independent contractors, volunteers, and interns. Limits are available starting at $250,000 going up to $5 million and there are multiple deductible options.
Rockwood also created an online quoting engine that features six questions and provides a quote in less than a minute to simplify the selling process for agents. The MGA also offers tools like claims scenarios and common exposures that are not covered to help agents show clients why they need the coverage.
“About 25 percent of companies that are eligible to buy EPLI actually buy it,” says Clark. “People say, ‘I am never going to get sued,’ and the reality is that you are.”
Clark says if more agents followed a process that explained what a client’s EPLI exposures are and that those exposures are not covered by their general liability or business owners policy, clients would be better informed and more likely to buy EPLI coverage. Taking those steps also helps an agent protect their own E&O exposure.
“The biggest mistake agents make is they don’t finish the sale. They think offering the coverage is selling the coverage,” says Clark. “Selling the coverage would best be done through a risk management process. Go through the exposures and show them this is not covered.”
Lyngaas says with new trends like workplace bullying, social media, and transgender type claims, it’s important for agents to address these issues with their clients and carriers to adjust their policy forms as needed.
Providing specific educational resources to agents about the SME segment is also crucial because of the “it won’t happen to me” attitude that these businesses have, says Lyngaas.
“Giving [agents] claims scenarios and other tools like webinars and educational pieces is definitely going to help them sell the coverage,” she says.
Clark says the pressure that small businesses currently face actually makes it vitally important for them to carry EPLI coverage because even if an accusation is unfounded, it still needs to be defended – a huge cost to an SME. He says the average claim begins at about $30,000 but a policy premium is only about $1,200. The MGA is also working on a policy form specifically for California that features a high deductible and a more restrictive insuring clause to make the coverage more affordable there, where EPLI claims are the highest.
Considering the high number of people on disability and unemployment, Clark says it is likely that EPLI claims will continue to go up, which should be enough to get the coverage conversation started.
“[Agents] need to make the impression that everyone is going to get accused of something sooner or later,” says Clark.