Legal professional liability insurance rates can be baffling to many attorneys. However, there are a few key variables that influence what kind of rate you can get for any given policy.
Learning how these variables affect your rates can help you keep your insurance costs under control as well as understand which factors are beyond your control—and why they affect your rates anyway.
How long have you been in practice?
Contrary to what you might assume, new attorneys actually pay less for malpractice insurance than experienced attorneys—even experienced attorneys with no history of claims. You’re not alone if you’re asking, “Why? Aren’t experienced, proven attorneys less likely to make mistakes and get sued?” After all, that’s how we treat drivers, right?
The difference is that malpractice claims against an attorney can come up months or years after the event that gives rise to it. While an auto accident is immediately apparent, an attorney can make an error that isn’t noticed or doesn’t result in losses until much later.
An insurer covering an attorney in her third year of practice is taking on more risk than one covering a new lawyer simply because the experienced attorney has been practicing longer, exposing her to greater risk.
As a result, insurance companies use what’s referred to as a step rate factor. A new attorney begins at a rate factor of 1.0, and that factor increases gradually over approximately seven years, when it maxes out around 2.4.
Given no increased risk factors other than time in practice, attorneys should expect to see rates increase around 2–5% per year. If you see a more dramatic jump (say 15–25%), then this can be a sign that your insurer has been using poor underwriting practices and is attempting to make up for their losses with rate hikes. In that case, it’s probably time to shop for a new policy.
How many attorneys are you insuring?
Insurers base premiums for firms in part on the number of attorneys they insure. The more attorneys on a policy, the better the per-attorney rate should be.
What area(s) of law do you practice?
Some areas of law expose attorneys to higher levels of risk than others. For example, a plaintiff’s personal injury attorney or a commercial transactions attorney faces a higher malpractice risk than a lawyer working in litigation defense or mediation.
Each area of practice is assigned its own risk factor. Attorneys or firms practicing in multiple areas of law are given a weighted average depending on what proportion of the practice is devoted to each practice area.
What claim limits do you need?
Lawyers who practice in higher risk areas must take these risks into account when choosing coverage limits. While a low-level criminal defense attorney may reasonably get by with a modest limit of $100,000 per claim and $300,000 per year, a lawyer working in intellectual property will likely need a much more robust policy—which will naturally carry a higher price.
What kind of deductible can you afford?
Just as with other types of insurance, the higher the deductible you’re willing to pay in the event of a claim, the lower your premium. When deciding on a deductible level, it’s important to carefully balance your monthly budgeting needs with your ability to pay the deductible amount if the need arises.
Have you had claims in the past?
This can have a big influence on your rates. Having a clean claims history can get you generous credits—sometimes as much as 30%. However, depending on their number and size, claims in your past can result in substantial rate increases or cause you to be ineligible for coverage.
While claims can increase your rates, it’s important not to hesitate to inform your insurer of potential claims. Insurers tend to appreciate the opportunity to head off potential claims before they become lawsuits and won’t punish attorneys for providing this advance warning.
On the other hand, failing to report a potential claim that you should have been aware of can cause your insurer to deny coverage. Many insurers provide attorneys with a hotline they can call if something comes up and they’re not sure how to handle it. They can call and talk to a malpractice defense attorney for free without the claim going on their record.
Before you sign up for a professional liability policy, make sure you understand the insurer’s procedures for handling potential claims.
Are you maintaining risk management procedures?
Insurers can offer substantial breaks on rates to firms that exemplify good risk management practices. To understand what practices an insurer rewards, look at the application.
Questions about your firm’s management practices and procedures will give you insight into how you can show the insurer that your firm takes steps to minimize its malpractice risk. These typically include things like getting a signed engagement letter before working with a client and maintaining continuing education.
If you’re ready to shop for legal professional liability insurance, contact ProDefender. We can help you understand what levels of coverage you need and get the best rates on a policy that protects your assets and your professional reputation.