Employment Practices Liability (EPL) Insurance 2024 Outlook

Navigating Employment Practices Liability (EPL) Insurance 2024 Outlook | Property & Casualty

Employment practices liability (EPL) policyholders have been facing a challenging market characterized by persistent rate increases, heightened underwriting scrutiny and constrained capacity. These premium increases and coverage restrictions have varied across sectors, geographic locations, potential exposures and prior claims. Moreover, the trend of higher retention, particularly on primary retention, has added further pressure to the segment.

A slight improvement in these conditions in the past year has led to a decrease in rates. According to industry data, insured individuals with a positive claims history experienced premium increases of 5% to 15% in 2022. However, the average rate increases moderated from 3% to 7% in 2023. These findings are consistent with the latest Hard Market Conditions Pulse Survey conducted by Zywave. According to the survey, 75.5% of insurance brokers and agents reported either declines, stability or single-digit increases in their clients' EPL insurance premiums in 2023. Further, with claim frequency and severity lower than expected, most EPL carriers have resumed accepting new business.

In 2024, most insureds will experience modest rate increases. However, it’s important to note that policyholders with poor loss history or those operating in certain states (e.g., California, New York, Illinois, Texas, Florida) and industries (e.g., health care, hospitality, education, retail) may encounter more substantial rate hikes and coverage restrictions. These challenges are likely to persist for high-risk insureds, underscoring the importance of maintaining formalized and effective risk management measures to address emerging cost-driving trends (e.g., regulatory issues, discrimination concerns, rising employment litigation).

Trends Shaping the EPL Market

Increased Regulatory Scrutiny

Over the past few years, the White House and the Equal Employment Opportunity Commission (EEOC) have collaborated on various regulatory initiatives aimed at combating employment discrimination. Systemic discrimination (e.g., racial injustices, gender pay disparities) led to a 50% increase in new employment discrimination lawsuits filed by the EEOC during 2023. The EEOC’s Strategic Enforcement Plan (SEP) for 2024–2028 outlines priorities, including:

  • Eliminating recruitment barriers
  • Protecting vulnerable workers
  • Addressing selected emerging issues (e.g., AI discrimination)
  • Preserving access to the legal system

Discrimination Legislative Trends & Litigation

Legislation and litigation related to various forms of employment discrimination are contributing to rising EPL exposures. Currently, federal employment laws prohibit adverse treatment based on a range of protected characteristics. However, these characteristics don’t expressly include height and weight. Consequently, certain states and municipalities have introduced legislation addressing workplace size discrimination. These developments have originated from nationwide employee advocacy seeking to expand protected characteristics to encompass height and weight. With the growing adoption of comparable laws in different regions, businesses that neglect to uphold equitable treatment for employees of various body types could encounter substantial legal repercussions, including lawsuits and consequent losses from employment practices liability (EPL).

To enhance protection for pregnant employees and working mothers, the federal government has introduced new legislation, such as the Pregnant Workers Fairness Act (PWFA) and the Providing Urgent Maternal Protections for Nursing Mothers Act (PUMP Act). There has been a notable increase in litigation. Bloomberg reports that federal pregnancy discrimination lawsuits have surged by 67% since 2016. Settlements reported by the EEOC now exceed $20 million annually, representing more than a 30% increase from the 10-year average. Legal experts anticipate these trends to continue in the coming years, thereby exacerbating companies’ EPL exposures and losses.

Automated Employment Practices Bias

According to the Society for Human Resources Management (SHRM), up to 85% of organizations now use AI technology for HR operations, including recruitment, hiring, performance evaluations and retention determinations. The incorporation of artificial intelligence systems into employment procedures brings about various employment practices liability risks. Despite being intended to deliver unbiased outcomes, AI systems can lead to discriminatory judgments if they rely on biased algorithms. The EEOC has recently issued guidance highlighting the importance for employers to assess AI systems for potential biases.

In collaboration with various federal agencies, the EEOC recently issued a joint statement expressing its unwavering commitment to enforcing Title VII and other anti-discrimination legislation, given the prevalence of AI technology. Additionally, the EEOC achieved a significant milestone by resolving the first-ever case involving AI-driven discrimination. The settlement entailed a company that agreed to compensate $365,000 following a lawsuit filed on behalf of over 200 job applicants. They alleged that the company's AI-fueled recruitment system was configured to automatically reject applicants based on age.

Strategic Tips for Buyers

  • Policy Evaluation: Review your employee handbook and related policies. Verify all appropriate policies are in place, including language on discrimination, harassment and retaliation.
  • Training: Encourage workplace diversity, acceptance and inclusion through routine employee training. Educate your staff on emerging discrimination (e.g., pregnancy, size) and provide comprehensive prevention and response measures.
  • Documentation: Take discrimination reports seriously. Record all evaluations, employee complaints and situations that result in employee termination.
  • AI Assessment: Assess the algorithms for any AI systems utilized in employment procedures to prevent discriminatory decisions and ensure compliance with applicable EEOC guidelines.

We’re Here to Help to Protect Against Employment Exposures

Experts predict a 0 to 10% increase in EPL insurance premiums in 2024. Do not worry; you are not in this alone. We are here to help you understand the current EPL market and strategize with risk management opportunities to protect your organization from these risks. If you have more questions about your EPL coverage or the status of the market, connect with a member of our team.

Navigating Employment Practices Liability (EPL) Insurance 2024 Outlook | Property & Casualty https://www.cbiz.com/Portals/0/Images/GettyImages-1385097502-3.jpg?ver=0T6c6kFIJqgJw5u0jWpM-g%3d%3dDiscover the shifts in the 2024 Employment Practices Liability (EPL) insurance landscape, including AI legal concerns and the impact of discrimination legislation on risk. Stay informed to safeguard your organization. 2024-01-22T18:00:00-05:00Discover the shifts in the 2024 Employment Practices Liability (EPL) insurance landscape, including AI legal concerns and the impact of discrimination legislation on risk. Stay informed to safeguard your organization. Risk MitigationProperty & Casualty InsuranceYes