EPLI Services Pushed To Limit Losses

In the past, the idea of offering riskmanagement services with employment practices liability policiesseemed like an afterthought–an add-on that some EPL carrierspackaged with their policies to set themselves apart fromcompetitors.

Now, experts say these services are absolutely essential tocreating better risks–and brokers, not just insurers, have gotteninto the business of supplying them.

“A lot of EPL insurers in the last two or three years addedtoll-free numbers, and theyll do audits of policies and procedures,but its been really passive,” said Peter Taffae, a wholesale brokerfor e-peril.com in Los Angeles.

Until recently, he said, no one had taken such servicesseriously, referring both to underwriters and clients. The serviceswerent maximized and people werent using them, he said.

Mr. Taffae, a self-described “D&O guy” who doesnt normallyget involved in loss control–the territory of “boiler and machineryand property guys”–said he has immersed himself in the concept bystriking up a strategic alliance with a law firm. “To get thesedeals done and protect the insured, weve had to set up work-outprograms with law firms to actually implement tangible lossprevention measures,” he said.

While EPLI risk management services, including audits, seminarsand Internet-based training, have been the province of insurancecarriers in the past, Mr. Taffae described why broker involvementmakes sense.

“We had an account in Las Vegas that had just over 10 claims ina year,” he said. “The claims didnt amount to a lot, but there wastoo much frequency and the underwriter just didnt feel like theinsured was really on top of its game.” Though no one wanted torenew the coverage, “there are about 1,000 employees. They had tohave it,” he recalled.

After asking a law firm what steps could be taken, the firmlooked at the allegations. “Without actually getting engaged rightaway, they said these are the types of things that we think couldbe done to minimize claims,” he said.

The underwriter agreed that if the client would be willing toretain the law firm to do at least three out of the fiverecommended actions, they would renew the account for another year.“Its worked out well. Its turned around. Its really a successstory,” he said, although he declined to reveal the name of theclient or the law firm.

Letha Heaton, vice president of sales and marketing for ShandMorahan & Company in Deerfield, Ill., said underwriters likeShand are also “focusing a bit more on loss prevention.” Indeed,she said that Shand, which generally writes EPL for businesses withunder 200 employees, is considering imposing a mandatory lossprevention requirement for certain classes of business.

The companies, she said, would have to take discriminationtesting, “a program that we would offer them over the Web.”

She noted that the mandatory training would probably apply toclasses like contractors and construction companies, which by theirnature are “the first to suffer when the economy startscompressing.” Ms. Heaton explained that construction is also atough class because work is “very transient, and the quality ofhuman resources, training and policies are not very good.”

Shand, the underwriting manager for Evanston Insurance Company,also provides an optional helpline staffed by a legal firm, shesaid. This is available to all clients on an as-needed basis.

Also available is a Web site that updates customers, bothpolicyholders and producers, on new legislation and tort lawchanges. The Web site also offers tools, such as examples of how toconduct exit or hiring interviews, and a sample human resourcespolicy handbook, as well as a bulletin board where customers canpost questions, she said.

At Chubb Specialty in Simsbury, Conn., Michael Maloney, vicepresident and EPLI manager, also described an array of serviceofferings. He emphasized that Chubbs approach is to make a widespectrum of tools available for a very diverse client base.

A feature of Chubbs EPL insurance program that allows for clientcustomization is a cost-sharing plan, he said, explaining thatChubb will pay 50 percent of the cost of loss prevention tools thatits clients go out and pay for, up to a maximum of 10 percent ofthe premium. In other words, he said, Chubb allocates 10 percent ofthe premium that it gets paid to a fund that clients can use tospend on loss prevention.

Fund dollars may also be spent to hire employment law firms orhuman resources consulting firms to do training, for statisticalassessments of hiring, pay or promotional practices, or to rewritetheir employee handbooks.

Another component of Chubbs service array is Web site training,AgosNet for Chubb, created by a third-party vendorthe AGOS Group.This site gives customers access to overviews of employment lawsand statutes, sample employment policies and procedures, and anonline magazine written by employment law and human resourcesexperts.

Chubbs 1-800-number service, available through the law firmJackson Lewis, he said, is probably attractive to smaller clients.He reasoned that because such firms dont have internal legalresources, they might want the ability to pick up the phone and askan expert about a situation that could lead to an employmentpractices complaint.

Ann Longmore, the national EPL practice leader for Willis in NewYork, agrees that loss control services are important, but saidthat in the past carriers have ignored those insureds that coulduse them most. In particular, she pointed to not-for-profitinstitutions, especially those in the healthcare sector. Thoseinstitutions, which typically purchase packages of coverage thatinclude EPL and D&O, “never got access to that whole array ofloss control tools available on standalone” EPL policies.

“Healthcare generally is a more challenged class–and now[healthcare institutions] are being bedeviled by EPL claims,” shesaid, noting that Willis has been pushing for carriers to beginoffering loss control tools to healthcare firms and othernot-for-profits for two years.

“We were being told that EPL claims were making these accountsvery unattractive,” she said. In addition, “these are the peoplewho have fewer resources to throw at the problem,” in particular,because many are going through restructurings, joint ventures andother types of consolidations.

Of the carriers, Ms. Longmore said, “We heard them say, itsalready getting into the non-profitable zone and we dont have moneyto pay for their loss control,” she said, but the institutions“dont have [the funds] either.”

She asked: “What about those accounts we want to pull back overthe line” to make them profitable for carriers–an argument she saidshe has voiced to carriers. “They want to become better accountsand [carriers] are getting sizable premiums” for them, she said,noting that some combined D&O/EPL programs for healthcarenon-profit organizations command six-figure premiums.

“They should have access to loss control,” she said, reportingthat in 2002, most carriers, “have at least made part of their losscontrol arrays available to those accounts.”

In general, Ms. Longmore said that with retentions going up onEPL insurance programs for both non-profits and for-profits,brokers are making a stronger push for clients to tap services withwhich they can demonstrate to insurers their ability to controllosses, potentially putting a lid on retention and prices.

Willis, she noted, holds seminars on various topics related toEPL to assist clients even further–for example, to explain thepotential EPL effects of recent court cases involving thearbitration and collective bargaining agreements.

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, May 13, 2002.Copyright 2002 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.