Early this year, I had heard that Aon Risk Solutions was working on a Wage & Hour coverage, and was intrigued. As many know, W&H has been a much sought after coverage, one that many carriers said ‘no way’ they would want to offer. Among other reasons, it was thought to be a dangerous coverage to offer, tempting employers to shift their compensation obligations to the insurer.
I have speculated that the small employer, and maybe the mid-sized employer, might be insurable, as many W&H violations seemed to be mistakes, not intentional. Some EPL carriers offer W&H coverage, but mostly it is defense only (see EPLI Market Survey 2011). Not surprisingly, these coverages are for the smaller employers.
What didn’t seem possible was that the large employer might be a market for this coverage.
In April, Aon brought out a new product designed for the larger employer that wanted indemnity and defense coverage for W&H claims. After 2 years of work developing and analyzing data, drafting policy forms, and educating potential carriers, the new product arrived to huge market interest. Before commenting on it, I wanted a bit of time to see the market’s reaction.
Some product notes:
- Capacity of $50 million+, with more being added as carriers become more comfortable with the concept
- A minimum retention of $5 million
- Probably makes the most sense for employers with 7,500 or more employees. This is not a restriction, more a result of the large retention.
- US-only employees
- Pricing is generally $20-30,000 per million, but this can vary substantially depending upon the risk
- There are 5 core carriers: XL, Alterra, Allied World, Chubb, and Beazley. Additional excess capacity is available from other carriers
- Coverage is on a claims made basis with broad prior acts
- Coverage choices between Defense, Classification Claims, and Pay Practices Claims can be made
- Choice of counsel is permitted, but consent is required for actions that may reasonably exceed 25% of the retention. Jackson Lewis, Seyfarth Shaw, and Morgan Lewis are pre-approved. Each played a key role in developing the product and will be critical to its success
- 50% hammer clause
Reports to date are that the potential insureds are very interested in the product, and have been willing (eager?) to provide the information required by the application.
This new coverage represents a significant step forward in EPL coverage for larger employers. We would not be surprised to see other carriers offering comparable products, and perhaps even extending into smaller employers. That last comment, though, illustrates a significant risk, as Aon and its insurance and legal partners believe that large employers are more likely to have controls that minimize the chance of a claim, and have the ability to sustain a large self-insured retention. Middle market and smaller employers have neither.
I’ll keep you posted.