How Much Does EPLI Coverage Cost?
EPLI (employment practices liability insurance) is a crucial coverage for any business, regardless of size. It protects companies against employment-related claims such as discrimination, wrongful termination, failure to promote, and other disputes.
EPLI claims are on the rise, and companies should do everything in their power to adapt to this new reality. The number of employment-related lawsuits has risen roughly 400% in the past 20 years. And it’s not just large enterprises being sued either. Almost half of all employment-related legal cases are brought against companies that have less than 100 employees.
The Me Too Movement has only served to underscore how severe cases of workplace harassment, discrimination, and abuse can be. It doesn’t matter how careful you are and how much you trust your employees and managers, every business that has employees can experience an EPLI claim.
How Much Will Your EPLI Premium Be?
One of the most frequent questions business owners have about EPLI is how much they will have to pay to protect themselves from employment liability claims. This is a complicated question and one that needs careful consideration. One of the issues many have with insurance underwriting is that the calculation of premiums appears to be fairly opaque and hard to understand for the average user.
Let’s break down how insurers calculate premiums to help you understand how much you would have to pay for EPLI and why. Insurance companies will typically consider the following factors:
Number of Employees
This is the main factor that will affect your premium when securing EPL coverage and it’s reasonably intuitive; the more employees you have, the greater the chance of a claim, and the more you’ll have to pay for coverage.
Another fairly straightforward situation; businesses that have higher turnover rates will have to pay more for coverage. High turnover rates often correlate with an increase in wrongful termination claims and other types of employment-related lawsuits.
While insurers have traditionally focused on the number of employees to determine EPLI premiums, recently, the focus has shifted towards how businesses are supporting their workforce. Your organization’s investment in its HR department plays an important role in this. Having the proper policies and procedures in place to help avoid situations that commonly lead to employment-related claims will significantly influence your EPL insurance premium.
Businesses that have not displayed a commitment toward HR practices that work towards educating and informing their employees about discrimination and harassment issues at the workplace will be viewed as higher-risk organizations and will have to pay more or be denied coverage altogether. Additionally, strong HR policies and procedures can often prevent claims and considerably reduce risks.
Industries in which employees interact with customers such as retail, hospitality, and professional services will typically be considered higher risk by insurers and will have to pay more for EPLI. Some industries are having a difficult time securing EPLI over #MeToo liability, specifically “sales mentality” organizations.
The higher the limit, the higher the premium will be. Most EPLI policy limits range from $100,000 to $1,000,000. While many small businesses may feel that a $100,000 limit is sufficient, legal defense costs and potentially expensive settlements or awarded damages will quickly surpass that limit. Given the rising cost of liability lawsuits related to employment practices, it would be wise for businesses to err on the side of caution and secure a higher limit.
Any past employment liability claims will affect how the underwriter views your business today.
Typically, insurers will look at your record over the past three years. If your company hasn’t had employment-related incidents in that time, you can expect to pay a lower premium.
Many EPLI policies will include a deductible. A deductible is the amount an employer will have to pay themselves in the event of an employment lawsuit before the insurance kicks in. The EPLI deductible will include attorney fees. The higher the deductible, the lower the premium. However, it’s essential to understand that with a high deductible, you may end up paying the entire cost of defending and settling smaller employment-related lawsuits.
Most conventional insurance policies have standard policy terms, but EPLI policy terms tend to vary quite a bit depending on which carrier is selling you the policy. It’s important to properly understand your coverage and read the fine print. Consulting a broker that is both very well versed in EPLI and the needs of businesses in your particular industry can help you get the right coverage for your business.
The Cost of Not Having EPLI
If a business forgoes investing in EPLI or doesn’t obtain sufficient coverage, the cost can be financially disastrous. The average price tag of settling out of court is about $75,000 per lawsuit. Defense costs could be astronomical win or lose. Court-awarded damages for employment-related lawsuits average out at $217,000 per claim.
Additionally, employment-related claims aren’t just expensive, they’re also incredibly stressful. Without the right management liability solutions in place, your leaders could become cautious and distracted. There are also very few things that are as bad for a business’s reputation as claims of discrimination and harassment. On top of all this, these types of issues in the workplace affect your employees most and could lead to a lack of productivity, a lack of trust, and a general lack of morale.
That’s why every business, no matter the industry or size, should consider securing the right employment liability risk management policies. Potentially investing several thousands of dollars per year into EPLI may be a significant expense for many small and medium businesses. However, any EPLI premium will prove to be a pittance compared to the costs of being hit with a costly discrimination or harassment lawsuit down the road.
To get a better understanding of what your EPLI needs are, what coverage limits you need, and how much it will cost you, you can reach out to one of our expert brokers at any time to secure the right coverage at the best price.