Congratulations, your law firm is expanding. You have hired a new attorney at your law firm. While this can be a very exciting time, growing a law firm comes with an array of tasks that need to be done.
One of the many things to consider when adding an attorney to your law firm is adding the new attorney to your legal malpractice insurance policy.
As a Renewal Account Executive at Protexure Insurance Agency, I work with attorneys to navigate the complexities of legal malpractice insurance. Frequently I work with attorneys who are growing their practice and adding another attorney to their policy.
One of the most common questions I receive when law firms are growing is “How much will adding an attorney to my policy cost?” The short answer is, it depends.
Below I have outlined the steps to adding an attorney to a legal malpractice insurance policy as well as a breakdown of the pricing structure for adding an attorney.
How to Add an Attorney to Your Legal Malpractice Insurance
Many have asked whether they need to add a new attorney to their insurance policy in the middle of their current policy period. At Protexure, we do not charge to add or remove an attorney mid-policy. But, at your policy renewal, you will experience a price increase when adding an attorney to your legal malpractice insurance policy.
At your legal malpractice policy renewal, your insurance company will ask you to fill out or update an application in order to get a better idea of what has changed at your law firm over the past year.
This is the time to include a new attorney to your insurance policy. Insurance carriers will ask a few general questions, “what's the name of the insured, when did they join the firm, what state are they licensed in, what is their designation” etc.
At Protexure, you will find these questions on page two of your renewal application, titled “Attorneys.” This previous information as well as the new attorneys annual hours, areas of practice, and how long they have been in practice will help us determine the cost to add a new attorney to an insurance policy.
The Cost of Adding an Attorney to a Legal Malpractice Policy
When adding an attorney to your legal malpractice insurance policy, you can expect there to be a price increase. But, this increase is not uniform and each firm will experience this increase differently.
Insurance carriers will look at a variety of factors relating to the new attorney such as annual hours worked, their areas of practice, and number of years with the firm.
Each of the factors we mentioned will play into the final cost of your legal malpractice insurance after adding an attorney. To better how each of the following factors will determine the cost of your insurance, we have outlined exactly how they affect premium
Annual Hours Worked
The estimated number of annual hours worked is asked for every attorney being insured. Depending on the number of hours worked the policy is placed into different price brackets. The annual hours brackets can vary between 1-500 hours, 501 - 1,001 hours and 1,001 and up.
Those who have less than 1000 annual hours worked are categorized as part time attorneys and their premium is generated separately from full time attorneys. It is also important to keep in mind that this is a practice only implemented for firms with more than one insured on the policy.
For Example, Protexure does not have part time policies for solo attorneys. Although a solo attorney’s annual hours might fall within the 1-500 range, the premium does not get generated at a part time cost. But, when adding an attorney to an insurance policy, the number of hours the attorney works will be taken into account whether they work part time or full time.
Area of Practice
The second impact on price when adding an insured to a policy is the individual's areas of practice. Each application requests an up to date area’s of practice (AOP) table that has the firm list all their specializations as well as what percentage of each category makes up the firm's revenue from the past fiscal year.
Since we are looking at the previous year, depending on when the new attorney joined the firm, the AOP table may not account for the new attorneys area or practice workload. However, at next year's renewal, the table should reflect a more accurate representation of the AOP breakdown for the firm.
This is where you can start seeing a bigger shift in premium, especially depending on what categories the firm already had listed or what is added.
For example, Attorney Y, added attorney X to the 2018 policy, but because the application is looking at the work performed in 2017, before Attorney X was added, Attorney Y’s AOP table looks as follows:
Criminal Defense - 20%
Family Law - 40%
Personal Injury Plaintiff - 40%
Now on the renewal application that looks back at the work performed during the 2018 policy term, the firm is adjusting the AOP table to include the work that Attorney X performed. Now the AOP table looks as follows:
Criminal Defense - 20%
Family Law - 20%
Personal Injury Plaintiff - 60%
This shift in percentages will cause a change in the cost of insurance because each area of practice has its own premium rating. In this scenario there was a percentage increase in a higher rated category (personal injury plaintiff) Therefore, there will be an increase in the law firms insurance premium.
Number of Years With The Law Firm
The final and arguably the most impactful to the law firm's pricing is how long the insured has been with the firm or insured. This has pretty large implications on the premium because if you are adding a brand new attorney to the policy, meaning they are being insured for the first time or have been insured for under five years, then they are implemented into a step rate program.
Step rate is an industry-wide pricing structure where the cost of insurance increases incrementally during the early years of coverage.
The best way to illustrate this pricing structure is with an example.
Lets say Attorney X joined Attorney Y’s policy in xx/xx/2018 and this was Attorney X’s first year practising law. Attorney X will be added to the policy at a discounted rate because this is a claim made policy and we are covering their prior acts, which he/she does not have at this time.
At renewal, Attorney X will move to step 1 and the premium will automatically increase at a set amount. This is because in addition to providing another year of service we are also now covering the work he/she performed on behalf of the firm going back to his inception date of xx/xx/2018.
The step rate program extends to 5 years, over the course of 5 years the amount of each set automatic increase decreases until after the 5th year when the attorney status is considered mature and the automatic increases stop. The only reason the premium would experience changes moving forward would be due to changes to the firm makeup, claims history and or changes in the general insurance environment.
What’s Next?
If you have recently added an attorney to your law practice, the best step you can take is to call your insurance company and notify them on the change with your law firm. They will help you navigate your next steps and inform you of the actions you need to take to ensure everyone at your practice is properly protected.
While legal malpractice insurance pricing is not a one size fits all, the pricing factors above will help you gain a better idea of what to expect before filling out your policy renewal application.
