When renewing professional liability policies, there are several questions we hear time and time again from our insureds. Policy renewal only happens once a year, but there is a lot to be aware of, and it’s easy to get lost in the mix.
If you are going through the renewal process yourself, you may have some of the same inquiries.
One of the most common reasons that insureds see an increase in their premium is due to step rate. This industry-wide pricing structure is what causes premiums to increase during the early years of professional liability insurance coverage.
When a firm purchases its first professional liability insurance policy or has had a lapse in prior coverage, the firm is not covered for previous errors and omissions that may have occurred before the start date of the policy. At this point, the attorney pays the lowest possible professional liability insurance premium. Once the attorney is at the second year of continuous coverage, the attorney's premium increases as the carrier is now providing two years of professional liability insurance coverage.
Another reason premium may go up is that the premium is the most discounted during the first year of coverage due to the possible delay between when an incident/potential claim occurs and when it is reported. The premium is lowest during the first year of coverage as this is the least likely time period for a claim to be reported. During the second year of coverage, a claim becomes increasingly more likely; therefore, the premium increases. The premium continues to increase each year at a declining percentage until after the fifth consecutive year of coverage.
After five consecutive years of coverage, the firm will become mature and will no longer receive a yearly increase due to step rate. After the firm is mature, the renewal premiums should remain about the same provided everything else remains about the same with the firm. As a mature firm, full prior acts coverage is provided for any claim filed since the date coverage initially began or the prior acts date.
If you decide not to renew your professional liability insurance policy with your current carrier, it is very important to maintain continuous coverage with another carrier in order to keep your firm protected all the way back to the day you began your coverage.
Professional liability insurance policies require insureds to maintain continuous coverage or else the prior acts date, the date coverage began, will not be honored. And, coverage for all prior work will be lost. Therefore, if you don’t renew your claims-made policy, you will no longer have coverage for the current policy period or any prior work completed since the prior acts date. If a claim comes in for prior work that was done after the original prior acts date, then the claim filed would not be covered.
In order to maintain continuous coverage and the prior acts date, it is imperative that the attorney renew the policy on time each year or purchase an extended reporting period at the appropriate time.
Additionally, you do not want to let your policy lapse due to skipping a payment for a finance agreement. This can result in your policy being canceled as well. Contact the finance company immediately if a late payment or a cancellation notice is received to avoid losing all of your coverage.
It’s a common thought that the renewal application is less important than the first application filled out with a carrier. But even when filling out a renewal application, it is extremely important to be as accurate as possible about the past 12 months for several reasons.
First and foremost, being accurate on your application benefits you, the insured. If you’re accurate on your application, insurance carriers are able to serve your needs better. For example, if there has been a change with your firm, such as a name change, all of the new information should be given in the application to avoid any possible issues that could arise in the future.
The most common item on the application that causes trouble for insureds is accuracy when disclosing all areas of practice. Every area practiced by the attorney should be disclosed, not just the “major” ones. Even if there has only been one case or client handled in the area of practice, it should be listed. If a claim were to arise from the one area of practice you neglected to list, it could cause more of an issue than anticipated.
Although the three questions above are the most common ones we hear, they certainly aren’t the only concerns you may have. For answers to all of your questions, reach out to one of our licensed professional liability specialists at 877-569-4111.