The prior post outlined likely market changes for D&O in the next 12 months or so, this one will focus on Employment Practices Liability.
Rates are up, but only slightly. Many carriers would love to see a 15% to 25% rate increase, but expect rates to increase 5% to 10% for loss free accounts. Rates will definitely increase more on risks with claims, as will retentions, and how much depends on the details of the loss(es), type of entity and the state (possibly even the county) where the risk is located. The real change is going to be on the underwriting side, as carriers will start - if they haven’t already started - to tighten up the filter on new and renewal business.
The reason for that is claim frequency and severity has increased for just about every company I’ve spoken with, and we’re going to blame the economy again, at least in part. Employers that are struggling financially are trying to get more work out of fewer people, which can translate to longer hours and higher stress levels for employees. It’s also possible many hourly employees are working more and not being properly compensated, and unfortunately sometimes the employer doesn’t realize they’re not in compliance with state or federal law (until their former employee’s attorney contacts them)
Another driver is some employment law has become a little more employee “friendly”. An example of this is the ADA Amendments Act of 2008. The Act went into effect January 1, 2009, with the EEOC regulations to implement the equal employment provisions of the Act effective as of March 25, 2011. One of the results of the Act is that it expanded the definition of “disability”. How much impact these changes have had is hard to measure at this point in time, but a couple of the underwriters I spoke with indicate they believe there is some impact regarding new claims.
And one other very specific reason frequency and severity is up is that the plaintiff bar is still very active regarding wage and hour claims. In my part of the world if I do a web search for “overtime laws” or “overtime claim” the first two websites that come up are local plaintiff firms. And they are on billboards, tv and radio, as you probably know. If you have customers with a decent number of hourly employees and you have not offered them terms that include wage and hour defense coverage, I would strongly urge you not to offer another renewal without that option included. If for some reason it’s not available to your client, at least you’ve done the work needed to confirm that and advise your customer accordingly.
We are still seeing companies enter the market re EPL, but compared to 3-5 years ago the numbers are down. And carriers are way less inclined to add more coverage - probably the most recent coverage enhancement or option is illegal alien investigation coverage.
The market is still very competitive, no doubt, but it appears we may have reached the “floor” when it comes to rates. And we may actually see more underwriting in the next 12 months or so.