It’s that time of year again. Your malpractice insurance is up for renewal and the last thing you want to do is take time away from your practice to fill out those dreaded applications.
But, if you want to make sure you are not paying too much, you need to take those applications seriously. It’s also time to make sure that you have the right amount of insurance for your needs.
Every attorney has a different profile and different needs. So, how do you know if you are paying too much for legal malpractice insurance? You need to do some homework and ask some questions.
Choosing the Right Amount of Legal Malpractice Insurance Coverage
When evaluating your legal malpractice insurance, the first step is to ask yourself, “What limits do I actually need?” You should choose the coverage amount that matches your level of risk.
Your potential exposures should directly correlate with the limits you’re carrying. The per claim and aggregate limits you have directly affect the price of your premium.
With that in mind, consider that if you need $1,000,000 per claim limit (which is a very common limit for solo attorneys and small firm), you will more than likely only need $1,000,000 as an aggregate limit as well.
We do see many firms that carry additional aggregate limits of either $2,000,000 or $3,000,000. These additional aggregate limits will cost you an additional premium. When choosing an aggregate limit, you should consider how many times you think you will have a $1,000,000 claim, let alone 2 large claims within a policy period. If you don't think there’s a chance you will face multiple claims in one policy period, you may not need additional aggregate limits.
Your deductible also affects your price. Just like with personal insurance policies, the higher your deductible, the lower your premium.
Deductibles for malpractice insurance can vary from as low as $1,000 to as high as $25,000, or even higher. They can also be either per claim or aggregate.
As with aggregate limits, an aggregate deductible comes at a higher premium. It is important to weigh these options. What can you afford if there is a claim? This is your skin in the game when a claim occurs, so make sure it is a cost you can absorb.
Considering Additional Coverage Options
Along with limits and deductible, your malpractice insurance policy may contain additional coverage options that increase your premium.
Some of these options are mandated by the State Insurance Department, but for the most part, these are optional. These options include Claims Expenses Outside the Limit of Liability and First Dollar Defense.
Briefly, Claims Expenses Outside the Limit provide a separate limit of liability set aside for defense costs so that they do not erode the policy limit to pay settlements resulting from a lawsuit.
First Dollar Defense is an option where the deductible will only apply to damages and will not be assessed to defense expenses.
Both of these options are certainly nice to have. But do you need them?
Some attorneys do have the exposures that warrant these additional coverage options. Review your policy carefully to determine if you have these additional coverage options and then decide if they are something you need for your firm profile.
Are You Being Charged Fees?
Additional things that you should watch for are broker fees that will increase what you pay each year. Many insurance brokers tack on additional fees in addition to the policy premium. But there are agencies such as Protexure that do not charge additional fees. Keep that in mind and ask those questions when choosing your insurance agent.
Also, do you pay your policy in one lump sum or do you pay it off over the policy period? If you are not paying a lump sum, you are more than likely being charged interest to spread those payments out. Those interest charges certainly can add up.
Updating Your Areas of Practice
Now, you have thought all this through and you are working on your application. What’s next?
Make sure you are reviewing the areas of practice (AOP) page and updating this from year to year. Carriers charge different rates for different areas of practice.
For instance, real estate has become a hot spot for claims in recent years, so it is likely your carrier charges a higher premium for that AOP.
For example, maybe a few years ago real estate was something you did frequently, but recently you have moved your practice to where it falls more heavily in family law or civil litigation. Making sure those AOP’s are updated to reflect your current practice is important to make sure your pricing is accurate.
Underwriters are also looking for firms with good risk strategies in place. Make sure you are implementing a diary system, following conflict of interest procedures and using engagement and non-engagement letters. Many insurance companies will offer better pricing to firms with these protocols in place.
Shopping for the Best Price
So, should you comparison shop for your legal malpractice insurance?
Do you wonder why even though there have been no changes to your firm’s profile and you have a handle on the management of your firm that your premium continues to increase every year?
Spending a little time every few years to comparison shop your coverage will help educate you on how your current premium compares to other carrier’s premiums.
Competition in the marketplace fluctuates over time which can lead to higher and lower rates. However, if you don’t occasionally get quotes from other carriers, you won’t know if your current premium is competitive.
But keep in mind, cheaper isn’t always better. Be prepared to do a little research. For example, review the financial ratings of the company, how long have they been in the business, are they admitted in the state you practice in? And, make sure you are comparing apples to apples coverage.
To sum it all up, it’s very important to take some time out of your busy schedule to do your homework. Make sure you have the policy that you need, no more or no less, at the right price. Legal malpractice insurance is a large cost for your business, so taking the time to make sure you are getting the best coverage for the best price is a sound business practice.