(August 2019)
The rating of ERPL may vary based on the form and carrier providing coverage. The following are items that should be utilized in developing the premium for ERPL coverage.
The critical rating factor is a firm’s number of employees, broken down between the number of management/supervisory and non-supervisory workers. In such instances, a different rate may be assessed for each group. Another rating option may be to apply different rates for exempt and non-exempt employees.
The number of employees is a key exposure base because more employees increase interactions among employees, performance reviews, disciplinary actions and other situations that may trigger ERPL claims.
Another reason for the number of employees to be the primary exposure base is that government regulation allows for punitive damage awards to be based upon such things as the number of employees. The larger the number of employees, the higher the punitive damage award that may be assessed in a judgment.
Risk Location
An operation’s
exposure to ERPL losses are affected by
the general level of litigiousness in different geographical locations. It may
also be affected by general economic conditions in a given area and its impact
on worker sensitivity to filing claims for perceived wrongs. Firms that have
more than one location are also more vulnerable to ERPL losses due to possible
operating differences among locations.
Class
Although the earliest employment-related practices liability policies did not use a class of business as a factor, many do so today. As additional employment-related practices liability claims data becomes available, more credibility should develop, supporting the approach of rates broken down and segregated by business class. Additional data, once analyzed, may also result in the creation of additional rating factors. Under Insurance Services Office’s program, the mining classes are highest rated (1.70 rating factor) and the lowest rated are the agricultural production classes (.6 rating factor).
Increased Liability Limits
An increased limits factor is normally applied based upon
the limit of insurance purchased.
Credits/Debits for Employment-Related Practices
As with any type of insurance, risks that have above-average features may be eligible for credits. Risks that are more vulnerable to loss may receive debits. The eligibility for credits and debits are based on the underwriting standards of the individual insurer, the loss control procedures in place, and the insured responsiveness and willingness to control and correct internal situations that may lead to offenses.
Deductibles and Co-payment
ISO’s form offers deductible and co-payment options. The more willing the insured is to participate in the paying of losses the greater the credit available.
Loss History
The claims experience or loss history of the individual risk has a considerable impact on the pricing of the account. Because of the legal trends in our modern society, risks are facing more and more employment-related practices liability claims and allegations. Frequency and severity are becoming an increasing problem. A risk’s prior claim and loss history are reflective of the account’s potential for future losses and, as such, will have a great deal of bearing on premium.
Endorsements
Additional charges or credits may be applied based upon
increases or reduction in coverage or exposure as a result of endorsements
purchased.
Related Article: ISO Employment-Related Practices Liability Coverage Form Available Endorsements and Their Uses
Rating Formula
The basic formula for rating employment-related practices liability is to start with a rate (loss cost x company multiplier) based upon the location and the number of employees. That rate is multiplied by the total number of employees to develop a premium. That premium is multiplied by a class risk factor and an increased limits factor based upon the limit of liability selected. Credits and debits for expanded or restricted coverage, loss history, good or bad risk features, deductibles, and co-payments are applied to result in a final premium charged.