For many companies these days, the question is not if you will face an employment-related lawsuit, but when?
No matter how much you trust your employees or managers or how thoroughly you focus on training, it is extremely rare for a strategy to be 100 percent effective in avoiding claims of harassment or discrimination.
“The probability that a company will get sued for an alleged employment practices violation has increased dramatically; aggrieved employees drive some litigation, and, in other cases, plaintiffs’ lawyers encourage this type of claim,” said Beth Goldberg, chief underwriting officer, Financial Lines Division, Starr Insurance Companies. “These claims can be expensive just to defend, even if they are groundless.”
According to Westlaw, a legal research service by Thomson Reuters, plaintiffs win 51 percent of the time when employment practices liability (EPL) claims go to trial.
Losses from certain types of EPL lawsuits are also getting larger. Employment law firm Seyfarth Shaw LLP found that settlements for the 10 biggest class actions increased 55 percent from 2016 to 2017.
These damages, of course, don’t reflect the long-term impact to a company’s reputation. For all these reasons, boards are starting to take notice that, in today’s environment, an EPL insurance policy is not just “nice to have,” but an absolute necessity.
Four trends in particular are currently driving greater EPL exposure:
“The emotional distress and mental anguish components can be larger than the monetary demand for front pay and back pay,” Goldberg said.
Allegations from claimants may range from discomfort and embarrassment to anxiety and depression. They may claim that they’ve lost sleep and their health has deteriorated, due to the trauma of harassment or discrimination. Testimony from family, friends, and treating psychologists or psychiatrists can buttress these claims and win over a jury. It can be difficult to place a monetary value on these damages or argue with a claimant’s demand; determining what’s fair is very subjective.
Some federal discrimination statutes place caps on damages that plaintiffs can seek, but they can seek larger amounts by suing under different federal, state, and local laws that have no cap.
In New Jersey, for example, two brothers sued their former employer for racial discrimination, hostile work environment and retaliation under the New Jersey Law Against Discrimination (LAD).
The jury awarded them $2.5 million in damages, including $800,000 in emotional distress damages to one brother, and $600,000 to the other.
The “Me Too” movement has brought national attention to the issue of sexual harassment in and outside of the workplace. And while “Me Too” has provided a platform for victims to speak about their experiences and prompted a re-evaluation of what constitutes appropriate behavior, it has also increased the public profile of claims that may be false.
“Harassment has become a headline risk, one that is magnified by the media and can present an even greater threat to a company’s reputation,” said Lisa Lockhead, vice president, Head of Private & Not For Profit – Financial Lines, Starr Insurance Companies. Thanks to the power of social media, companies may be prosecuted in the court of public opinion, before they have a chance to present an argument or defend themselves. If the story gains enough traction, it could cost an executive his or her job and it can cost the company its consumers’ trust and loyalty.
“This type of reputational damage can happen even if a story is untrue,” Lockhead said. “The suggestion of misconduct may cast a cloud over the company’s brand value, which may translate into falling stock prices and long-term economic impact.”
Discriminatory practices that violate the Americans with Disabilities Act may similarly garner large settlements and present reputational risk. Recently, attorneys have sought out such potential problematic practices in places companies often overlook — their company websites.
“There has been a growing trend of plaintiff lawyers going after companies who do not make their websites accessible to the deaf and blind,” Goldberg said. According to research from Seyfarth Shaw LLP, plaintiffs filed 4,965 website accessibility lawsuits in the first half of 2018. At this rate, there will be close to 10,000 such suits by the end of the year – a 30 percent increase over 2017.
“People tend to associate ‘accessibility’ with physical spaces, but essentially every company has a website and this digital space is subject to the same oversight,” Goldberg said.
Physical spaces are still, however, up for grabs. Attorneys in some states are increasingly targeting small retail shops and corner stores that often lack the space to improve accessibility by widening doorways or installing ramps. According to a 2017 report by the New York Post, just five wheelchair-bound New Yorkers are behind almost 400 ADA lawsuits targeting small businesses across the city.
Even when store owners are renters, they can still be held accountable for noncompliance with the ADA. “The plaintiff firms are naming both (renters and owners) to go after the deep pockets,” Lockhead said.
In addition to federal regulations, companies must also contend with variances in state law.
“In particular, states vary in their protection of rights afforded to the LGBTQ community. Companies should have an understanding that discrimination based on sexual orientation or gender identity, but what are their obligations as far as bathroom access, or using non-gendered pronouns, etc. What rights are protected and to what extent?” Lockhead said.
Discrimination based on physical appearance is also treated differently on a state-by-state basis. California, for example, expressly bars employers from discriminating based on body type, while New York does not.
“State laws go far beyond federal regulations, and understanding the differences is especially important for multi-state employers,” Goldberg said.
There are several risk control and risk transfer strategies organizations can deploy to mitigate the EPL losses. Some basic controls are critical, like employee handbooks that detail a code of conduct, policies and procedures around hiring and firing, thorough training, and a dedicated leader of human resources.
The ADA published a 27-item checklist to help companies make their websites accessible. Most are easy fixes, such as including text descriptions for links and navigation menus, and HTML alt tags for images for hearing-impaired visitors, or corresponding audio descriptions for the visually-impaired. Sites should also offer a way to contact a web manager with questions or complaints about accessibility.
These adjustments are not resource-intensive, even for smaller companies. But companies also need to do an assessment of their corporate culture.
Part of improving company culture is providing a way for employees to raise concerns without fear of retribution. To that end, “providing a way for employees to report issues internally directly to the board —anonymously if they wish — can help get ahead of potential claims. Change has to come from the top down,” Lockhead said.
To learn more, visit www.starrcompanies.com/insurance/employmentpracticeliability.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Starr Companies. The editorial staff of Risk & Insurance had no role in its preparation.
The gig economy is growing. Nearly six million Americans, or 3.8 percent of the U.S. workforce, now have “contingent” work arrangements, with a further 10.6 million in categories such as independent contractors, on-call workers or temporary help agency staff and for-contract firms, often with well-known names such as Uber, Lyft and Airbnb.
The number of Americans owning a drone is also increasing — one recent survey suggested as much as one in 12 of the population — sparking vigorous debate on how regulation should apply to where and when the devices operate.
Add to this other 21st century societal changes, such as consumers’ appetite for other electronic gadgets and the advent of autonomous vehicles. It’s clear that the cover offered by the annually renewable traditional insurance policy is often not fit for purpose. Helped by the sophistication of insurance technology, the response has been an expanding range of ‘on-demand’ covers.
The term ‘on-demand’ is open to various interpretations. For Scott Walchek, founding chairman and CEO of pioneering on-demand insurance platform Trōv, it’s about “giving people agency over the items they own and enabling them to turn on insurance cover whenever they want for whatever they want — often for just a single item.”
“On-demand represents a whole new behavior and attitude towards insurance, which for years has very much been a case of ‘get it and forget it,’ ” said Walchek.
Trōv’s mobile app enables users to insure just a single item, such as a laptop, whenever they wish and to also select the period of cover required. When ready to buy insurance, they then snap a picture of the sales receipt or product code of the item they want covered.
While Walchek, who set up Trōv in 2012, stressed it’s a technology company and not an insurance company, it has attracted industry giants such as AXA and Munich Re as partners. Trōv began the U.S. roll-out of its on-demand personal property products this summer by launching in Arizona, having already established itself in Australia and the United Kingdom.
“Australia and the UK were great testing grounds, thanks to their single regulatory authorities,” said Walchek. “Trōv is already approved in 45 states, and we expect to complete the process in all by November.
“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group.” – Scott Walchek, founding chairman and CEO, Trōv
“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group,” he added.
“But a mass of tectonic societal shifts is also impacting older generations — on-demand cover fits the new ways in which they work, particularly the ‘untethered’ who aren’t always in the same workplace or using the same device. So we see on-demand going into societal lifestyle changes.”
In addition to its backing for Trōv, across the Atlantic, AXA has partnered with Insurtech start-up By Miles, launching a pay-as-you-go car insurance policy in the UK. The product is promoted as low-cost car insurance for drivers who travel no more than 140 miles per week, or 7,000 miles annually.
“Due to the growing need for these products, companies such as Marmalade — cover for learner drivers — and Cuvva — cover for part-time drivers — have also increased in popularity, and we expect to see more enter the market in the near future,” said AXA UK’s head of telematics, Katy Simpson.
Simpson confirmed that the new products’ initial appeal is to younger motorists, who are more regular users of new technology, while older drivers are warier about sharing too much personal information. However, she expects this to change as on-demand products become more prevalent.
“Looking at mileage-based insurance, such as By Miles specifically, it’s actually older generations who are most likely to save money, as the use of their vehicles tends to decline. Our job is therefore to not only create more customer-centric products but also highlight their benefits to everyone.”
Another Insurtech ready to partner with long-established names is New York-based Slice Labs, which in the UK is working with Legal & General to enter the homeshare insurance market, recently announcing that XL Catlin will use its insurance cloud services platform to create the world’s first on-demand cyber insurance solution.
“For our cyber product, we were looking for a partner on the fintech side, which dovetailed perfectly with what Slice was trying to do,” said John Coletti, head of XL Catlin’s cyber insurance team.
“The premise of selling cyber insurance to small businesses needs a platform such as that provided by Slice — we can get to customers in a discrete, seamless manner, and the partnership offers potential to open up other products.”
Slice Labs’ CEO Tim Attia added: “You can roll up on-demand cover in many different areas, ranging from contract workers to vacation rentals.
“The next leap forward will be provided by the new economy, which will create a range of new risks for on-demand insurance to respond to. McKinsey forecasts that by 2025, ecosystems will account for 30 percent of global premium revenue.
“When you’re a start-up, you can innovate and question long-held assumptions, but you don’t have the scale that an insurer can provide,” said Attia. “Our platform works well in getting new products out to the market and is scalable.”
Slice Labs is now reviewing the emerging markets, which aren’t hampered by “old, outdated infrastructures,” and plans to test the water via a hackathon in southeast Asia.
Insurtech-insurer collaborations suggest that the industry noted the banking sector’s experience, which names the tech disruptors before deciding partnerships, made greater sense commercially.
“It’s an interesting correlation,” said Slice’s managing director for marketing, Emily Kosick.
“I believe the trend worth calling out is that the window for insurers to innovate is much shorter, thanks to the banking sector’s efforts to offer omni-channel banking, incorporating mobile devices and, more recently, intelligent assistants like Alexa for personal banking.
“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.”
As with fintechs in banking, Insurtechs initially focused on the retail segment, with 75 percent of business in personal lines and the remainder in the commercial segment.
“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.” — Emily Kosick, managing director, marketing, Slice
Those proportions may be set to change, with innovations such as digital commercial insurance brokerage Embroker’s recent launch of the first digital D&O liability insurance policy, designed for venture capital-backed tech start-ups and reinsured by Munich Re.
Embroker said coverage that formerly took weeks to obtain is now available instantly.
“We focus on three main issues in developing new digital business — what is the customer’s pain point, what is the expense ratio and does it lend itself to algorithmic underwriting?” said CEO Matt Miller. “Workers’ compensation is another obvious class of insurance that can benefit from this approach.”
Jason Griswold, co-founder and chief operating officer of Insurtech REIN, highlighted further opportunities: “I’d add a third category to personal and business lines and that’s business-to-business-to-consumer. It’s there we see the biggest opportunities for partnering with major ecosystems generating large numbers of insureds and also big volumes of data.”
For now, insurers are accommodating Insurtech disruption. Will that change?
“Insurtechs have focused on products that regulators can understand easily and for which there is clear existing legislation, with consumer protection and insurer solvency the two issues of paramount importance,” noted Shawn Hanson, litigation partner at law firm Akin Gump.
“In time, we could see the disruptors partner with reinsurers rather than primary carriers. Another possibility is the likes of Amazon, Alphabet, Facebook and Apple, with their massive balance sheets, deciding to link up with a reinsurer,” he said.
“You can imagine one of them finding a good Insurtech and buying it, much as Amazon’s purchase of Whole Foods gave it entry into the retail sector.” &