Recent developments in employment legislation have reshaped the risk landscape for employers – increasing both complexity and exposure. Despite this, the Employment Practices Liability (EPL) insurance market is beginning to soften, creating improved risk transfer opportunities for buyers.
The EPL insurance market has historically been unfavourable for buyers due to limited capacity, significant retentions, and high premiums. During the challenging financial lines market of 2019-2021, many clients chose to non-renew or could not procure this type of coverage without limitations or onerous premiums/retentions. Instead, many opted to only cover their US exposure in the domestic market.
However, as the financial lines insurance market has become more competitive, UK insurers are increasingly expanding their capabilities in this area, creating more favourable conditions for global clients.
This occurs as employment legislation is changing, bringing the potential for more claims in future. The UK’s Employment Rights Act came into force in December 2025. Aimed at prioritising workers’ protections rights – often from day one – various provisions will come into force over the next two years.
At the same time, we are seeing an uptick in notifications across the EU. For example, this includes notifications related to the Working Time Directive, which comes with penalties that can be levied against insured persons personally – increasing the scope for employment related D&O claims.
Key trends
Claims frequency and severity
There is a noticeable uptick in claims related to workplace discrimination, harassment, and wrongful dismissal in the UK. The acclimatisation to hybrid working models and increased employee awareness of rights has potentially contributed to this. ACAS reported that (opens a new window) in 2024-2025:
A 12.5% increase in the total number of disputes, reaching the highest number since the Covid-19 Pandemic. With 10% of conciliated cases progressing to employment tribunal proceedings.
Unfair dismissal remains the most likely type of case, accounting for 28% of complaints received (an increase from 21% two years ago). It remains the most likely issue taken to employment tribunal, accounting for 48% of cases.
Disability-related cases, including mental health issues and symptoms related to menopause, account for 16% of disputes, jumping from 13% two years ago. This accounts for 28% of cases taken to employment tribunal.
Regulatory and legal developments
Alongside the aforementioned Working Time Directive, many EU countries have begun reporting following the EU Pay Transparency Directive, which has a June deadline. Whilst pay transparency is welcomed globally, it increases the exposure employers face to discrimination claims.
UK employment law continues to evolve, with increased protection for the workforce introduced by the Employment Rights Act 2025, provisions include:
April 2026
Parental leave rights established from the start of employment
Whistleblower protections for sexual harassment
Action plans for menopause and gender pay gaps (voluntary from April 2026, but mandatory from 2027)
October 2026
Time limit for making a claim to tribunal will increase from three to six months
"Fire and rehire" practices will automatically become unfair dismissal in most cases
Employers will be liable for harassment from third parties, unless they have taken reasonable steps to prevent it happening. Changes to the use of Non-Disclosure Agreements is also expected, voiding clauses preventing allegations of work-related harassment/discrimination
2027
Unfair dismissal protections will become a right after being in a job for six months, instead of two years
Increased pregnancy and maternity rights
Guaranteed hours for some workers under zero-hour contracts
Employers must allow flexible working where practical
The Fair Work Agency was established in April 2026 to bring together various bodies for enforcement of employment rights. These changes are expected to drive more EPL claims, particularly as employees become more empowered to challenge unfair treatment.
AI and algorithmic bias
The use of AI in recruitment and HR decision-making is under growing scrutiny. The EU Artificial Intelligence Act classifies many HR-related AI systems as high-risk, including tools used for recruitment, performance evaluation, termination decisions, and workforce monitoring and productivity tracking. From August 2026, increased risk assessments will be required, alongside bias testing, human oversight, and transparency disclosures.
While regulations continue to evolve, insurers are already assessing the EPL risks associated with algorithmic bias and automated decision-making. As well as increasing the company’s exposure to employment claims, Directors should consider the implications of utilising AI in employment in respect of their fiduciary duties and potential allegations of non-financial misconduct.
Underwriting outlook
The UK market is currently buyer-friendly, with increased insurer appetite and broader coverage terms. Capacity is ample, and some insurers are offering enhanced limits or reduced deductibles to attract business. However, underwriters continue to adopt a cautious approach, often requiring more than one financial lines insurance policy in order to provide competitive EPL terms. Businesses in sectors with higher exposure – such as hospitality, retail, and care – or those more heavily exposed to more litigious territories, such as the US or France, may still face more restrictive terms or significant premiums.
Strategic considerations
With increased capacity available, upcoming legislation changes, and declining premium spend across insurance programmes, now is an optimal time for businesses to review procuring EPL coverage.
Demonstrating robust HR practices, including up-to-date employee handbooks, grievance procedures, and training on discrimination and harassment, remains key to managing risk and securing favourable insurance terms. To mitigate future EPL exposures, employers should stay ahead of known and potential regulatory changes – particularly around AI use and workplace transparency.
To help employers implement practical risk controls, Aviva has recently released their own check list (opens a new window) for employers navigating changes stemming from the Employment Rights Act 2025.
For further information, reach out to a member of our team.
