What are insurance market realities in 2024?

Competition is still strong and maintains stability in the EPL market.

• The size of the rate increase will depend on many factors, in particular the industry, loss history and location of employees. Assuming the risk profile does not change and there are no losses, rate increases are likely to be close to minimal. California remains the most challenging jurisdiction. New Jersey, New York, and Florida also remain challenging.
• Withholdings : While many withholdings have stabilized, loss history and employee location can still lead to increased withholdings. Markets continue to seek separate class action retentions, particularly in California. In addition, some domestic markets are also seeking separate withholdings by state (e.g., California, Illinois, New York and New Jersey) and often even by specific counties. In many cases, there are separate (higher) withholdings for high-wage workers in certain industries.
• Limits : Many domestic markets continue to lower limits, from $5 million to $10 million. Some Bermuda markets also want to lower limits to $15 million.
• Excess : As in other lines, excess EPL markets are following primary upside in addition to seeking correction of elevated limit factors (ILFs).
• Capacity : Overall capacity in the EPL market remains stable. Additional capacity (AIG) has been added to the Bermuda market.
• Underwriting : expect questions regarding ESG (specifically diversity, equity and inclusion initiatives), pay equity audits, labor shortages, whether layoffs and supply chain issues are being addressed (depending on industry).
• Coverage : Coverage remains unchanged; carriers continue to add privacy/biometrics exclusions.

Industry overview

• Healthcare : The healthcare industry remains under pressure to retain physicians and highly compensated employees. Forecasts for renewal rates for this industry are slightly higher than for the broader EPL market, ranging from +5% to +15%.
• Technology, Media & Telecommunications (TMT) : The number of highly paid employees continues to increase. The technology sector experienced layoffs at the beginning of the year, raising concerns that this could impact the results of the EPL update in the technology sector. However, if this sector experiences more redundancies before the end of the year and into 2024, we could see premium growth in excess of the wider EPL market forecasts.

Artificial intelligence in the workplace can lead to labor law violations.

• Many companies use software, including artificial intelligence, and other technologies in hiring and other employment decisions. The use of these technologies can be beneficial to employers in terms of saving time, etc., but it can also lead to allegations of discrimination.
• On May 18, 2023, the Equal Employment Opportunity Commission (EEOC) issued guidance, "Assessing the Adverse Impact of Software, Algorithms, and Artificial Intelligence Used in Employment Selection Procedures Under Title VII of the Civil Rights Act of 1964," regarding the use of artificial intelligence in employment.
• The EEOC's guidance is "limited to evaluating whether an employer's 'selection procedures' - the procedures it uses to make hiring, promotion, and termination decisions - have a disproportionate adverse impact on a basis prohibited by Title VII." Essentially, it focuses on claims of disproportionate impact.
• New York City has adopted a first-of-its-kind ordinance that will go into effect on July 5, 2023. The ordinance prohibits employers from using automated employment decision-making tools (AEDTs) to screen applicants and employees within New York City unless certain bias screening and notification requirements are met.
• Several other states have proposed bills addressing the use of artificial intelligence in the employment context.

Potential implications of the Harvard and UNC decisions for employers

• This summer, the Supreme Court decided two landmark cases in which it ruled that race can no longer be considered in college admissions. The cases are Students for Fair Admissions (SFFA) v. President and Fellows of Harvard College and SFFA v. University of North Carolina et al.
• The Court's decision dealt exclusively with affirmative action in higher education admissions and its legality under Title VI and the Fourteenth Amendment. Affirmative action in the employment context is distinct and strictly prohibited under Title VII of the Civil Rights Act, which is the governing law for employment matters. Note: The Fourteenth Amendment, by its terms, limits discrimination only by governmental organizations, not by private individuals such as private employers.
• Accordingly, the decision does not require employers to take any action and/or make changes to their diversity, equity and inclusion (DEI) initiatives, hiring processes, etc., if they already comply with relevant labor laws. Nevertheless, the decision has potential practical implications for employers, as it may increase the likelihood of reverse discrimination cases and lawsuits challenging corporate DEI programs.

The DOL's proposal regarding overtime exemptions, ESG and equal pay laws could impact employment lawsuits.

• On August 30, 2023, the Department of Labor (DOL) submitted a long-awaited proposal to update the white collar overtime exemption provisions applicable to executive, administrative, and professional (EAP) employees under the Fair Labor Standards Act (FLSA).
• The proposed rule focuses on the FLSA wage test for exemptions and increases the standard minimum wage to $1,059 per week.
• If the proposed rule becomes final, it could impact employers in all industries utilizing EAP exemptions by requiring them to review the classification status of exempt employees paid below $1,059 per week, to the extent that these exempt employees are not already paid the higher minimum wage under state law.
• In the context of employment, the focus on the "social" component, or the "S" in ESG, will continue in 2024. In particular, diversity, equity and inclusion initiatives in organizations will be a focus. Employees are using social media to push their organizations to implement ESG policies, especially around equal pay, gender and racial equity, and sexual harassment. Policyholders should continue to expect questions from underwriters regarding their diversity, equity and inclusion initiatives, particularly racial equity and pay equity.
• When it comes to pay equity, employers have recently been forced to require pay transparency from job applicants and employees. Many states, including California, Rhode Island, Maryland, Washington, Connecticut and Colorado, are passing laws requiring employers to disclose job applicants' pay ranges. Policyholders should expect questions from underwriters about the status of equal pay audits and compliance with transparency laws.