Insurance Marketplace Realities 2024 – Employment practices liability

Rate predictions: Employment practices liability (EPL)

	Trend	Range
Domestic markets		Flat to +10%
Bermuda markets		Flat to +5%

Competition is still strong and keeping the EPL market stable.

• The extent of rate increases will be determined by many factors, particularly industry, loss history and location of employees. Assuming no change in risk profile and no losses, rate increases are more likely to be close to or at flat. California continues to be the most problematic jurisdiction. New Jersey, New York and Florida remain challenging as well.
• Retentions: While many retentions have been stabilized, loss history and location of employees may still lead to increases in retentions. Markets continue to seek separate retentions for class actions, especially in California. Moreover, some domestic markets have also sought separate retentions for states (e.g., California, Illinois, New York and New Jersey) and oftentimes even county-specific retentions. In many instances, there are separate (higher) retentions for highly compensated employees in certain industries.
• Limits: Many domestic markets continue to provide lower limits — $5 million to $10 million with some Bermuda markets also looking to cut back to $15 million.
• Excess: As in other lines, excess EPL markets are following primary increases in addition to looking to correct increased limit factors (ILFs).
• Capacity: Overall capacity in the EPL market is stable. Additional capacity (AIG) has been added in the Bermuda market.
• Underwriting: Expect some questions regarding ESG (specifically, diversity, equity and inclusion initiatives), pay equity audits, labor shortages, whether layoffs are being considered and supply chain challenges (depending on the industry).
• Coverage: Coverage remains intact; carriers continue to add privacy/biometrics exclusions.

Industry spotlight

• Healthcare: In the healthcare space, there remains pressure on physician/high wage earner retentions. Renewal rate predictions relative to this industry are modestly higher than the broader EPL market, in the range of +5% to +15%.
• Technology, media and telecommunications (TMT): High wage earner retentions continue to be added. In the technology sector, there were layoffs earlier in the year which gave rise to concerns of a greater impact to technology EPL renewal outcomes. Yet, overall, this did not manifest. Nevertheless, if more layoffs occur in this space through the remainder of the year and into 2024, we could experience increases in premium beyond broader EPL market predictions.

Artificial intelligence in the workplace may lead to employment practice violations.

• Many companies are using software, including artificial intelligence and other technologies in hiring and in other employment decisions. The use of these technologies may be helpful for employers in saving time, etc. but they may also lead to allegations of discrimination.
• On May 18, 2023, the Equal Employment Opportunity Commission (EEOC) issued guidance “Assessing Adverse Impact in Software, Algorithms, and Artificial Intelligence Used in Employment Selection Procedures Under Title VII of the Civil Rights Act of 1964” regarding the use of AI in employment.
• The EEOC guidance is “limited to the assessment of whether an employer’s “selection procedures”—the procedures it uses to make employment decisions, such as hiring, promotion and firing, have a disproportionately large negative effect on a basis that is prohibited by Title VII.” Essentially, it is focused on disparate impact claims.
• New York City adopted a first-of-its-kind regulation that went into effect on July 5, 2023. The regulation makes it unlawful for employers to use automated employment decision tools (AEDTs) to screen candidates and employees within New York City unless certain bias audit and notice requirements are met.
• Several other states have proposed bills regarding the use of AI in the employment context.

Potential implications of the Harvard and UNC decisions for employers

• The Supreme Court decided two companion landmark cases this summer wherein they ruled that race can no longer be considered in the college admissions process. Students for Fair Admissions, Inc. (SFFA) v. President and Fellows of Harvard College, and SFFA v. University of North Carolina et al.
• The Court’s decision was specifically limited to affirmative action in admissions processes in higher education and the legality of same under Title VI and the Fourteenth Amendment. Affirmative action in the employment context is different and strictly prohibited pursuant to Title VII of the Civil Rights Act, which is the governing law for employment matters. Note: The Fourteenth Amendment, by its terms, limits discrimination only by governmental entities, not by private parties, such as private employers.
• Accordingly, the decision does not require employers to take any action and/or to make changes to their diversity, equity and inclusion (DEI) initiatives, hiring processes, etc. assuming those already comply with relevant employment laws. However, there are potential practical implications for employers, as they may increase the potential for reverse discrimination cases and claims challenging corporate DEI programs.

Department of Labor proposal regarding overtime exemptions, ESG, and pay equity legislation could impact employment claims.

• On August 30, 2023, the Department of Labor (DOL) unveiled its long-awaited proposal to update the “white collar” overtime exemption regulations applicable to executive, administrative and professional (EAP) employees under the Fair Labor Standards Act (FLSA).
• The proposed rule focuses on the FLSA’s salary level test for the exemptions and increases the standard minimum salary level to $1,059 per week.
• If it becomes final, the proposed rule could impact employers across all industries that use the EAP exemptions as it would require employers to reevaluate the classification status of exempt employees currently paid a salary below $1,059 per week, to the extent such exempt employees are not already paid a higher minimum salary under state law.
• In the employment context, focus on the “social” component, or “S” in ESG will continue into 2024. Specifically, the focus will be on diversity, equity and inclusion initiatives within organizations. Employees are using social media to push their organizations to implement ESG policies, particularly around pay equity, gender and racial equality and sexual harassment. Insureds should continue to expect questions from underwriters regarding their diversity, equity and inclusion initiatives, particularly racial equity and pay equity.
• In relation to pay equity, there has been a push to require employers to offer pay transparency for applicants and employees. Many states, including California, Rhode Island, Maryland, Washington, Connecticut and Colorado, are implementing laws wherein employers must disclose the pay range for applicants. Insureds should expect questions from underwriters regarding status of pay equity audits and compliance with transparency laws.

Disclaimer

Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).

Contacts

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Talene M. Carter

National Employment Practices Liability Product Leader, FINEX North America

email Email phone +1 212 915 8721

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Nina Krull

Southeast Region Leader & Claims Advocate, FINEX North America

email Email phone +1 336 692 7557

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Joann D. Nilsson

Claims Advocate, FINEX North America

email Email phone + 1 212 915 8388

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