In our third and final episode devoted to Specialty Lines, Charlie and his guest, Jackie LaRock of RT Specialty discuss EPL. After having discussed the impact of Covid and other market conditions on Cyber Liability and Public and Private D&O, they touch on Employment Practices Liability. All three lines have seen increases in rates and retention. This combined with a lowering of limits, more of this business has moved to the non-admitted, E&S space. In this ever-hardening market, it is important for agents to understand the underlying impacts on these Specialty Lines. In closing, remember to educate and prepare your clients for the changing rates and coverages. Don’t miss the prior two episodes in this series. Check them out at the links above.
Edwin K. Morris (5s):
Welcome to the trusted advisor podcast brought to you by Iroquois group. Iroquois is your trusted advisor in all things insurance. This week, you’re listening to Charlie’s corner, a segment hosted by our very own Charlie Venus. As we had into section three of the series with Jackie LaRock
Charlie Venus (24s):
Covering EPL and general market trends from the last six months. Welcome back to all of our listeners. So now moving on to EPL, I would think particularly in light of COVID, that claims are probably going through the roof on the employment practices side. Is that an accurate statement?
Jackie LaRock (42s):
Anytime there is an economic downturn, there’s no question that there’s an increase in D&O claims and also an increase in employment practices liability claims. And that’s certainly the case here. It’s not uncommon when employers that are laid off to contemplate bringing an action against their former employer for discrimination, retaliation, wrongful, termination, et cetera, in connection with their loss of employment. So underwriters are very concerned about layoffs. They’re concerned about using counsel and connections with layoffs. However, everyone is aware that given what transpired earlier this year, most companies had at least some reduction in staff and maybe they had to terminate or furlough their entire staff.
Jackie LaRock (1m 26s):
One of the interesting concerns that I’ve seen from underwriters regarding employment practices liability is whether all previously terminated employees had been rehired. And I thought this was kind of curious, but I realized that the, the focus there and with that concern, the concern is a focus on whether there’s discrimination and who has been rehired versus who was terminated in the first place. So there’s just added focus in COVID questionnaires with respect to both D&O and EPL. There are COVID questionnaires that insureds are being asked to complete in connection with their employment practices, liability and D&O renewals that addressed some of these issues. I’ll also say that in the current marketplace, it’s very challenging to place any accounts that have not purchased coverage in the past.
Jackie LaRock (2m 12s):
So for example, if a company decided not to purchase employment practices liability in the past, because they thought the premiums were high, their odds of purchasing that coverage now is going to be very slim because the carriers are not willing to step up and write coverage for a company that has not maintained it for the past year. Similarly, with new buyers, there can be challenges in placing coverage. So the underwriters are concerned about protocols being in place to mitigate COVID related exposures with employees obviously,
Charlie Venus (2m 40s):
Is there an increased exposure for companies that have taken the PPP loan, because that was money that was supposed to go directly to the employees. So if, if a company takes the PPE loan and then there’s layoffs, have any increase in exposure from a employment practices standpoint?
Jackie LaRock (3m 2s):
I think it has an increased exposure from a, from more of a D&O component because the company is not applying the funds to the purpose for which they were intended by the government. I think there’s likely potential exposure on the employment practice liability side as well, because again, understand these employees can bring actions as whistleblowers alleging that they are terminated, particularly if they know that their company had a PPP loan and didn’t retain the employees as required by the loan terms enforced by the government
Charlie Venus (3m 36s):
From an EPL standpoint, are you seeing the same market conditions in terms of rate increases, changes in limits, increases in retention as we’re seeing in the cyber and in the D&O market?
Jackie LaRock (3m 53s):
Yes. And in the employment practices liability sector, there’s definitely been changes as you just mentioned. However, those changes have been occurring over a longer continuum than what we’ve been seeing in the cyber liability arena, which as I said, has been a drastic change in the last few months in the public D&O sector, but in particular, which was, which really started in mid April of 2020. So employment practices claims have been upticking for years, as you know, a few years ago, the focus was on the #MeToo type exposures. So we haven’t seen hardening there, but it’s, again, again, it’s been more of a normal hardening rather than something that’s happened almost overnight, like we’ve seen with other exposures.
Charlie Venus (4m 39s):
So it’s been much more gradual there than what we we’re seeing in the D&O and the cyber markets that have taken place in the last four to six months.
Jackie LaRock (4m 47s):
Correct. And again, we’re still seeing more, you know, tight terms coming out because again, the market overall is tightened. And one of the major impacts of the pandemic has been to cause claims across a very, very wide spectrum of coverages. And so, because of that, I think, I think we’re seeing a cumulative impact. So it’s not just D&O. It’s not just EPL. It’s not just cyber, it’s not just property casualty, et cetera. We’re seeing the pandemic impact all these lines of coverage at once. So that overall impact is being felt against all these lines of coverage.
Jackie LaRock (5m 28s):
And the carriers are not seeing much respite in terms of having lines of coverage that aren’t being impacted by COVID, but it certainly has impacted certain segments, more aggressively, such as public D&O, such as more recently, private D&O and cyber.
Charlie Venus (5m 43s):
Are there any other lines of business, either on the management liability side or the, the professional liability side that has, is having similar impact as to what we’ve already talked about for, for D&O, cyber, and EPL?
Jackie LaRock (5m 58s):
On the professional liability side, the healthcare sector has been particularly hit. Those insureds that are in the senior care space, whether it be assisted living, long-term care, et cetera, are experiencing fairly significant rate increases. There is a reduction in capacity impacts that are being felt in this sector. So that then the healthcare sector obviously impacted by COVID in a very direct way, is seeing some significant changes in their terms.
Charlie Venus (6m 30s):
You mentioned earlier that you saw increased capacity coming into the marketplace. Although it’s going to take some time, do you see increased capacity from a professional liability standpoint for industries like healthcare in the next 12 to 18 months?
Jackie LaRock (6m 45s):
Based on what I read, there are industry veterans that are starting up new facilities and have been raising capital. And again, starting to do programs, hiring underwriting teams, management teams to jump into the marketplace and take advantage of the current hard market cycle. And this is, this is the norm. When the market gets hard, additional capacity flows in, there are some existing insurers that are also noticing the opportunity and they had been raising capital and building up their teams to take advantage of the current market conditions. And obviously when there is enough adequate capital in the marketplace that will alleviate the rate pressure and insureds will have some respite from the current conditions.
Jackie LaRock (7m 32s):
But as you said, that takes a period of time. The impact may not be felt for six months to a year or even longer.
Charlie Venus (7m 38s):
And from an overall standpoint, what do you see in terms of the transition of business from admitted markets, because of all these issues to non admitted markets, are you seeing a significant transition right now?
Jackie LaRock (7m 53s):
Overwhelmingly there has been a significant uptick in surplus lines, non admitted placements as carriers that are willing to write risks. Won’t write them on their admitted paper with admitted and approved terms and premiums. So there’s no question that the ENS marketplace has been, seen a huge uptick in opportunities and in placement,
Charlie Venus (8m 21s):
You’re going to be staying busy for the foreseeable future. Absolutely correct. Well, Jackie, is there anything, any other topics that I missed that you think we should, we should talk about?
Jackie LaRock (8m 34s):
I don’t think so. Charlie, I think we talked through the highlights of what is going on now. My recommendations to insurers are to have closed dialogue with your insurance professionals so that you’re not caught unaware by changes as they’re occurring. My recommendations to brokers and agents is to have regular dialogue with your insureds. And as a broker, we are trying to stay very closely aligned with the information that our underwriters are sharing with us. Because again, it’s important to stay ahead of the curve and understand the trends that are occurring. So as to avoid to the extent possible any very negative unexpected surprises.
Jackie LaRock (9m 19s):
So that is really the challenge: communication on all levels of this industry, as we move forward
Edwin K. Morris (9m 27s):
Very much, Jackie pleasure having you today, and a great conversation.
Jackie LaRock (9m 32s):
Thanks Charlie. I appreciate it.
Edwin K. Morris (9m 35s):
Thanks for listening to this edition of Charlie’s corner brought to you by Iroquois group. I am Edwin K. Morris, and I invite you to join us for the next edition of the trusted advisor podcast.