Words of wisdom from our business insurance experts.
The next time you read about a popular founder or business leader getting called out for sexually assaulting an employee, it's safe to say their insurance provider is probably on the hook for the bill. Employment related lawsuits are crushing the insurance market and California is leading the charge.
If you're a business owner, or an executive managing the insurance for an organization, you've probably noticed rates increasing across your entire insurance portfolio. The global pandemic has been rocking insurers with claims and new ways of life are unveiling some unforeseeable risks (remote working, for example). These are unprecedented times within the property and casualty side of the industry, and our analysts don't necessarily see things getting better.
Here's the scoop -
Before the pandemic, employment-related claims were rising due a surge of media attention around movements like #MeToo. High profile celebrities like Gwyneth Paltrow, Ashley Judd, and Uma Thurman brought things to light that had been going on for decades. Widespread media, particularly in Hollywood, led to top executive terminations across all industries. Sexual harassments, discrimination, and wrongful termination are some of the most common examples of claims.
Fortunately, employees are no longer staying silent when issues arise in the workplace, but it's wreaking havoc on the insurers proving EPLI coverage.
In addition, the pandemic rattled the economy and more employers were forced to layoff workers and reduce their workforces. As a result, upset employees decided to sue and lawyers went all-in. Today in California, we're stuck with a unfavorable scenario for an insurance company - tough laws, savvy lawyers, and an upset workforce.
The golden state is notoriously a litigious state, favoring the employee versus the employer. When an employee claims there was an issue in the workplace, the state typically sides with the employee, resulting in large pay-outs by the insurance company providing EPLI coverage. Compared to other states, California courts settle for much more too. In fact. it costs about 260% more to resolve a claim compared to other states. In addition, according to a report from Kaufman Borgeest & Ryan, 21% of reported settlements in excess of $2 million were brought in California, as were four out of the top 10 settlements. This put additional pressure on the primary insurers to offer higher limits, as well as Excess Liability insurers.
Further, lawyers understand this bias and are pushing litigation harder to receive settlement payouts. They know what recent claims have settled for in the past and expect to get more on new lawsuits.
Insurers are stuck with one option to recoup the millions being paid out - increase rates and retentions.
According to a survey done with 20 EPLI carriers, rates during 2020 increased anywhere from 5% to 35%,. A business with 50-100 employees in California may see their annual premium jump by $25,000 to $50,000 with the recent adjustment. Certainly a tough pill to swallow and more of a reason to "shop" coverage at renewal.
And it doesn't stop there.
The EPLI market is so out of control in California that insurers putting on the breaks with offering coverage altogether. Top insurers providing Business Owners Policies (BOP) like Travelers, Hartford, and Liberty are capping EPLI limits to $25,000.
So we're left with an unpleasant scenario - a limited marketplace surrounded by frequent losses.
Will these rates and premiums get better? Hard to say. It's going to be up to the state to figure out how to control it and up to business owners and executives to implement practices that limit employee-related claims.
Speak with one of our advisors today and learn more about how to protect your business from employment claims.