Pricing Employment Practices Liability Exposures

Over the past ten years the insurance industry has developed and introduced an Employment Practices Liability (EPL) policy to cover employers against allegations of wrongful employment practices (discrimination, sexual harassment or wrongful termination). The demand for EPL coverage has increased dramatically in recent years due to: l The significant rise in the number of claims alleging discrimination, sexual harassment or wrongful termination against employers; and l The employment practices exclusion added to many mainstream insurance policies, clarifying some insurance carriers position that it was never their intent to cover EPL. This paper is divided into seven sections, The first section is an introduction and briefly summarizes countrywide EPL claims statistics and trends based on data published by the Equal Employment Opportunity Commission (EEOC). The next section defines wrongful employment practices. Insurance coverage issues surrounding wrongful employment actions under mainstream insurance policies is discussed in the third section. The fourth section describes the EPL policy and the obstacles that actuaries face in pricing the product. The current rating methodology for EPL, as contained in publicly available rate filings is discussed in the next section. The sixth section describes a new pricing method which we developed to price the EPL policy based on data available from the EEOC. We also describe some of the various EEOC databases and publications. The final section provides our conclusion.