The nightmare that you thought would never happen has come. You have been sued. Insurance is something you never wanted to use but thankfully you have professional liability insurance and hopefully the process runs smoothly and painless.
Going through a claim can be very stressful, and thinking about the cost of your insurance going forward can add to the stress. There can be a lot of unknowns:
- Is your current insurance carrier going to continue to cover you?
- Will they raise your rates?
- If you choose to switch insurance carriers, will you end up paying more?
Unfortunately, this is not an uncommon scenario. As the Assistant Vice President of Sales at Protexure, I have worked with countless law firms who have experienced exactly this. Once a claim has been resolved and the dust has settled, attorneys look to the future and worry about the implications a claim has on their insurance record.
At Protexure we help small law firms navigate these challenges and find an insurance policy that fits their new needs and budget.
Throughout this article, we will look at some things you may want to consider and be aware of when reviewing the cost of your legal malpractice insurance after a claim.
While the cost of legal malpractice insurance varies after a claim, there are a few factors that will determine how significant a raise in cost might be:
- The details of the most recent claim
- Your overall claim history
- What is happening in the legal malpractice insurance market
How a Recent Claim Can Affect Your Legal Malpractice Insurance Costs
When renewing your legal malpractice insurance, if there has been a claim made in the past year, your insurance carrier will take that into consideration when determining the cost of your insurance. And, in some cases, they may even consider not renewing your policy.
A factor insurance carriers will consider when reviewing a claim and determining your renewability is whether or not there was liability. If you had liability, the renewal premium is likely to go up. If you were not liable, a significant increase in cost is not as likely.
Unfortunately, even if you were not liable, your insurance premium may slightly increase due to the carrier paying out on the claim.
Sometimes the carrier will settle the claim to mitigate the overall cost to be paid which may help you in the long run.
Carriers are going to review the amount paid in damages as well as the total amount paid in defense expenses. Defense expenses can rack up quickly and if they get too high, your insurability going forward may be in jeopardy.
How Claim History Impacts Your Insurance Rates
Another factor that will be considered when evaluating the cost of your insurance going forward after a claim is your claim history and longevity with the carrier. If this isn’t your first claim, the premium will likely go up more and could lead to the carrier not renewing you.
Further, if the previous claim had similar circumstances, your premium is likely to increase by a higher amount as well.
If you have not been with your current carrier for very long, you are also more likely to receive a larger increase or non-renewal. On the flip side, if you have been with your carrier for a long time and have a clean claim history, it will help mitigate the increase in your premium.
For example, with Protexure Insurance Agency, and our carrier Crum & Forster, one of the first things brought up when discussing claims is how long the insured has been insured with our company. A long claim free history is looked at much more favorably.
It can help in the long term to stay with the same carrier each year, even if it is a little bit more money in the short term, because the relationship you build with your carrier can work in your favor.
What Does the Insurance Marketplace Have to Do with Increasing Costs?
So far, we have reviewed the pricing factors you are directly involved in which can affect your premium. Unfortunately, other factors you can’t help can also affect your premium.
The state of the insurance marketplace affects your premium going forward. You could have a minimal claim payout and no liability but still get non-renewed.
Higher than expected claim values in your state and practice areas can be the largest factor in determining your renewal premium or renewability. If the carrier is paying more than they expect in a certain area or state, they will be forced to increase premiums for those areas or stop insuring the business entirely.
The state of the economy also can affect your premium. Typically a poor economy leads to more people being stringent with their money and more likely to complain about services not suiting their needs.
Unfortunately when the economy is down, clients are statistically more likely to blame their lawyer when cases don't go in their favor. When the lawyer is blamed, a suit typically follows and defense costs can be incurred by the carrier even when there is no liability. During these times premiums will often increase due to the increased risk of a claim across the entire insurance industry.
How Much Legal Malpractice Insurance Costs After a Claim
Most people assume that after a claim is made against an insurance policy, the cost of their insurance will increase. While this is not wrong, you may be surprised to hear that the increases typically are not as significant as you may think.
As we have seen many different factors can go into determining your premium after a claim. While we can't tell you exactly how much your premium will increase because there are so many factors at play, we can give you tips on how to keep the increase to a minimum.
The best way to reduce the likelihood of a large premium increase after a claim is to report potential claims as soon as you are aware of them. When insurance carriers can get ahead of a claim they are typically able to mitigate costs. The less your claim costs, the less likely you are to see a significant increase in premium.
Additionally, being responsive with your claims adjuster can help you in the long run. An insurance carrier may ask the claims handler how it was working with you. The more people you have in your corner, the better.
If you do experience a significant increase in the cost of your legal malpractice insurance after a claim, it may be worth exploring other options for legal malpractice insurance. Depending on the increase, there may be equal or better carriers who won’t increase your rates to the same degree.