By TOM HAMS, the employment practices liability insurance national practice leader for Aon Risk Solutions
Most brokers and insureds are familiar with the application process for employment practices liability insurance. Employment practices liability applications are pretty straight forward and do not allow for an insured to distinguish itself regarding the insurability of its particular employment practices liability risk.
Such applications typically seek basic information about an insured's demographics, human resources policies and procedures, finances, and claim history.
Underwriters need this information to obtain a basic understanding of an insured's risk. In fact, most underwriters use this information, along with their various rating tools and models, to obtain estimates in pricing and develop fair employment practices liability terms.
The problem, though, is that underwriting tools and models are limited. These tools can give an underwriter an idea or a basic feel for an employer's liability, but typically it is not specific enough to allow an underwriter to fully gauge the true nature of a given risk.
That's why meetings between an insured and the underwriter play a vital role in getting underwriters to appreciate the nuances that a particular insured presents.
Recent case law and U.S. Equal Employment Opportunity Commission initiatives regarding the role of background and credit checks in the pre-employment process have alerted underwriters to the hazards that such tests can impose for employment practices risks.
While underwriters recognize the importance of background checks and for certain positions, credit checks, underwriters want to be assured that performing such checks are necessary and directly related to the job functions of a potential hire.
Therefore, be prepared to show underwriters that these checks are not done just as a matter of course. Rather, insureds should demonstrate that the checks are designed to find out if an employee is fit to perform the particular duties for his or her position.
There has also been more focus by the Equal Employment Opportunity Commission on the use of personality tests for hiring and/or advancement. Be prepared for questions around what, if any, personality tests your organizations uses.
If your organization uses them, be prepared to explain who developed the tests, and the process of adapting the test for their specific use including what validation process was used to vet the tests.
Were the tests reviewed by outside counsel? Where they screened by an industrial psychologist? Were the results reviewed for potential disparate impact after the tests were administered?
HUMAN RESOURCE FUNCTIONS
It would be unusual for an employer of some size not to have a human resources department. In fact, the mere existence of a human resources department or even a human resources manual doesn't really influence an employment practices liability underwriter.
Rather, underwriters are more concerned with how often human resources policies are reviewed by human resources professionals and employment counsel, and how often the manuals are updated and distributed to employees.
Plus, employers will score points with underwriters if employers can demonstrate that each employee received a copy of the human resources manual, and that the employee can confirm they've reviewed the manual and understand its contents.
The same applies to anti-discrimination and anti-harassment training. Underwriters expect organizations to provide such employee training annually at a minimum whether as a matter of company policy or compliance with the law.
This doesn't mean that this should not be addressed in any of your underwriting discussions, as failure to do so could adversely impact the assessment of your risk.
To ensure that you do not lose points in the underwriting process, be sure to demonstrate that all such training is acknowledged by employees and that the company tracks who has and has not taken the required training.
One way to gain points with your underwriter is by illustrating how your organization requires timely completion of such training as part of the employee's performance and review--and whereby failure to complete such training blocks possible promotions, pay increases or bonus eligibility.
Employment practices liability underwriting meetings focus on the role, policies and procedures, staffing and interaction of an insured's human resources department.
Items that underwriters would like to see regarding human resources activities include whether there is an automated employee compliant hotline, or at the very least a tracking system to monitor progress of the investigations.
Underwriters want to know if matters closed out in the system contain clearly documented findings and solutions. They want to know how long it takes to clear a typical matter. Can the employer demonstrate employee utilization of the service and the track matters to completion?
With regard to employee evaluations, underwriters also want to know how regularly evaluations are done.
Proof of annual written evaluations are a must for underwriters, and underwriters want to see that all evaluations are not just performed by immediate supervisors, but that they are reviewed by others in the organization as well. Evaluations should always be part of the employee's file and should be signed by the employee.
Underwriters will also want to know if the insured requires a forced ranking system. Underwriters prefer that employees are not forced into rankings in order to achieve bell curve results for employee reviews as it increases the likelihood of managerial prejudice when forcing individuals into certain ranks.
Underwriters will also want to know if performance reviews are actually analyzed. It is always good practice to demonstrate that performance reviews are analyzed to find patterns of disparate impact on particular groups of employees, or even a pattern of discrimination on the part of individual managers.
Underwriters expect good employment practices liability risks to have a progressive discipline process, as underwriters look at the role of front-line managers in the discipline process.
Managers with too much authority or control are viewed by underwriters as evidence of an organization with greater potential for prejudice affecting personnel decisions.
Underwriters also want to know if the process of disciplining employees is part of the human resources manual, and whether employees are aware of the discipline process.
They also want to know who else is involved in the process. Is it human resources? The next level of management? Outside counsel?
Particularly with regard to employee discipline, underwriters want to see action is only taken when an employee's file extensively documents the issues that brought about the need to discipline as well as the discipline process itself.
While few organizations that have done this, underwriters appreciate an organization that can demonstrate how long it takes to go from initial documentation of performance issues to corrective employment action.
Some organizations allow employees to appeal certain types of discipline that may be enacted against them to a peer review panel. This is a winner with underwriters. Be sure to highlight any data you have in your underwriting meetings.
Presenting underwriters with your organization's diversity programs and initiatives should be the cornerstone of your employment practices liability presentation.
Lately, and more frequently, I have heard underwriters comment on how much they were impressed with an organization's diversity programs. Indeed, underwriters have suggested that expansive diversity programs are the true indicators of an organization's employment environment.
Details in underwriting meetings that you may want to emphasize include a company's dedication to diversity programs. Companies with dedicated diversity officers fare better than those without. If you have such an individual in your organization, ensure they get ample time to present at your underwriting meeting.
Diversity is also a means of doing business for the company, and organizations that can demonstrate which diversity programs and initiatives are directly related to the success of the business have the greatest effect on underwriters.
Diversity is part of the organization's core values and companies with a diversity plan, with clear recruiting objectives, and with developing and retaining a diverse workforce at all corporate levels are going to fare well in the eyes of underwriters.
When you get right down to it, it's the detail that matters. It's one thing for an underwriter to hear that an organization prides itself on its human resources policies and its diversity programs. But it's the proof of that pride that matters most when the time comes to meet with your underwriters. Whenever possible provide the data and use exhibits.
They are tools to show off your company's prowess, and they are tools for your underwriter to argue on your behalf for favorable employment practices liability coverage pricing and terms.
May 1, 2011
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