EPLI squeeze higher costs, lesser coverage: employment practices liability coverage is becoming scarcer and more costly, so risk managers may need to shop around and identify potential gaps.

• Author: Morris, Barbara A.
• Position: Insurance - Employment practices liability insurance

Like many insurance markets, the employment practices liability insurance (EPLI) marketplace is getting tougher. Companies are seeing increasing rates and retentions, declining availability of limits and tighter policy terms and conditions -- all of which can take a bite out of profits.

That's significant, because in just a few decades, EPLI -- which generally covers employers for worker-generated actions over issues such as harassment or age discrimination -- has evolved from a relatively unknown product to an essential component of a company's insurance portfolio, reflecting the growing impact of employment practices litigation on corporate America's bottom line.

As one consultant observes: "Even the suggestion of legal action can immediately create risk for a company. The EPLI exposure and response is now a problem every company CFO has to deal with. They need to keep this on their radar screen."

And insurers are getting increasingly skittish. "Many EPLI carriers are dissatisfied with loss results. They are entering and leaving markets based on a perceived lack of success," says Pam Ritz, president of Austin, Texas-based Specialty Risk Management. Ritz identified a number of trends driving changes in the EPU marketplace.

Specifically, she pointed to emerging exposures, including a significant rise in the numbers of "retaliation" claims, which are now rivaling discrimination and sexual harassment allegations. EPLI carriers, she continued, are also making concerted efforts to avoid states where they perceive tort reforms are lacking.

Moreover, she notes, about 55 percent of employers lose EPLI lawsuits -- a trend that is understandably unsettling to many carriers. The result: EPLI insurance is becoming decidedly more difficult to acquire, particularly by employers in industries with historically high EPLI claims activities, or that are located in venues deemed by carriers as being favorable to plaintiffs.

Among the carriers mentioned as active in the area: Ace, Chubb, CNA, St. Paul, Travelers, Zurich, XL, Swiss Re, Fireman's Fund, Great American, Hartford, Kemper, Lloyd's, Zurich and two subsidiaries of AIG, Lexington and National Union.

Ritz adds that only a few years ago, EPLI coverage was often -- and relatively easily -- obtained through purchase of a combined liability product; now, however, those opportunities are diminishing. Risk managers, she notes, will not only have to shop the coverage separately, but will be held to stricter...