Because of smaller employers' lower deductibles, “those insurers that either focused on, or entirely write” EPLI business for employers with under 1,000 employees “were showing significant increases in frequency of claims almost immediately,” which turned into losses for them, said Chicago-based Aon Managing Director Tom Hams.
The insurers responded by increasing rates for these accounts, Mr. Hams said. “We think the deductibles tended go up as well as pricing,” he added.
Larger employers take larger deductibles
Mr. Hams said the loss frequency was, in fact, the same for larger employers as it was for the smaller employers, but larger employers' experience did not impact insurers because of their larger deductibles, which absorbed the impact of claims and made their increased frequency “irrelevant to the carriers.”
Most accounts still are seeing flat pricing or small decreases, according to Aon.
Historically, most insurers “really liked” small employer business despite their small retentions “because they didn't have significant exposure,” Mr. Hams said. “That dynamic has shifted” now, he said.
Mr. Hams said because the frequency did not materialize until late in the year, its impact was not reflected to a large extent in annual results.
Rates decreased over full year
For all of 2011, EPLI rates decreased 5.8% compared with 2010, according to the Aon study. Overall, annual EPLI rates have been decreasing since the 2007 report, according to Aon.
Mr. Hams said he believes the fourth quarter’s increased frequency is driven by “increased aggressiveness” by the Equal Employment Opportunity Commission, which is filing more charges against employers, and because of economic conditions.
“More individual employees are tending to sue because of the lack of opportunities,” he said.
Increasing awareness of the potential for discrimination and harassment litigation has persuaded more privately held middle-market companies to purchase employment practices liability insurance, according to experts.