Are you an attorney considering a solo practice and curious about the cost of malpractice insurance? Or do you already have an established solo practice but need to add this type of insurance to your plan? You are not alone.
At Protexure Insurance Agency, we specialize in Professional Liability Insurance for solo attorneys and small firms. Most often, the attorneys we talk to realize that the peace of mind that comes with having malpractice (a key category of professional liability) insurance far outweighs the cost.
So, how much do you need to budget for malpractice insurance? Here is a breakdown of the factors that go into the pricing.
Coverage options for solo attorneys
One of the most essential cost factors is the amount of coverage you need as a solo attorney.
You have a wide range of limit options. The lowest limit typically offered is $100,000 per claim with a $300,000 aggregate limit ($100,000/$300,000). Other popular per-claim limits are $250,000, $500,000, and $1,000,000. There are several other options, but these are the most common.
Your next consideration should be your deductible. Most policies require the firm to carry a deductible. The lowest available deductible is usually $1,000. Other typical deductibles are $2,500 and $5,000. However, if you want to save on premiums, you can have a deductible of $10,000 or higher.
Additional coverage options
In addition to the limits of liability and deductibles, some optional additional coverages are available that will affect the premium of your Professional Liability Insurance policy, but many attorneys find them worth the extra cost.
You can opt for an aggregate deductible instead of a per-claim deductible. This means that if you have more than one claim during a policy period, you are only responsible for the deductible amount once during that period.
Other options include Claim Expenses in Addition to the Limit, which provides an additional limit to pay claim expenses, so they do not reduce your chosen liability limit.
Finally, you can select First Dollar Defense, which protects you from paying the deductible when only defense costs are paid out in a claim. Most attorneys only select one or two of these options, as each option typically increases the premium by about 10%.
Learn more about understanding your policy here.
The cost of Professional Liability Insurance for solo attorneys
When it comes to the cost of Professional Liability Insurance for solo attorneys, there are a few factors that determine the price.
- The firm’s areas of practice
- Location of the law firm
- Annual hours worked
- Claims history
Area of practice
When an insurance company sets pricing, the firm’s Area of Practice (AOP) breakdown is one of the most significant factors. Some practice areas have a higher propensity for claims than others.
Of the most common areas of practice for solo attorneys, the ones rated the highest include Real Estate, Personal Injury, Wills, and Trusts and Estates. The insurance companies keep a close eye on the type of claims that come in and will price those practice areas higher.
Location of the law firm
Office locations in or near large metropolitan areas tend to have higher premiums than offices in small towns or less populated areas. This premium difference can be attributed to a higher risk rate due to higher population density and the possibility of more claims.
Claim history
Claim history is another factor insurance companies consider when determining the cost of Professional Liability Insurance. Insurance carriers recognize that all claims are not created equal. If a claim is reported but nothing is paid out, you can expect little to no change to your premium.
On the other hand, if you have had a recent claim where a payout was made to a plaintiff due to an error, you will see your premium increase. From our many years in business, we have noticed that firms with one claim tend to have additional claims in the future at a higher rate than firms that have never had a claim. Sometimes, the insurance carrier may even choose not to renew the law firm’s policy in the next year.
Annual hours worked
Typically, a solo attorney will not encounter this pricing factor as most solo attorneys work at least 40 hours a week. However, part-time attorneys can receive a discount for their annual hours worked.
Caveat: Some insurance programs do not offer part-time policies, especially for solo attorney firms.
Cost of Professional Liability Insurance over time
If you’re a solo attorney who has never had insurance or recently obtained a professional liability policy, another significant pricing factor you will experience is step rating. Step rate is an industry-wide pricing structure where insurance costs gradually increase during the first few years of coverage.
Professional Liability Insurance is most commonly provided under a claims-made policy. Because of this, your first year of coverage will be the least expensive. The insurance cost increases each year because the likelihood of having a claim increases with each additional year of coverage provided.
The first-year policy is called RDI (Retro Date at Inception). If a claim is brought against you that alleges the error occurred before the inception of your policy, no coverage will be available to you.
If you maintain continuous malpractice insurance in the future, the retro date will remain the day you started your first policy.
For example, if your policy retroactive date is January 1, 2023 (regardless of when you purchased your policy in 2023), and a claim was made against you on March 1, 2024, an alleged act of malpractice on February 1, 2023 would be covered. This is because the policy that responds to the claim is effective when the claim was made in 2024, and your retroactive date is January 1, 2023.
As you can see from this, exposure increases as you maintain continuous insurance. As a result, insurance companies consider this when setting your price. Your pricing will gradually increase over the first few years of coverage and then level off to a consistent price.
At Protexure, we have a 5-year step rate plan where the cost of Professional Liability Insurance levels out after your 5th year of coverage.
How to save on Professional Liability Insurance
Contrary to popular belief, there are actions you can take to reduce the cost of malpractice insurance.
Insurance carriers want to insure attorneys who are “less of a risk.” With that said, if you implement specific practice management procedures and protocols that reduce the likelihood of a claim, insurance carriers will reward that with a reduction in premium.
When applying for malpractice insurance, you will find numerous questions on most applications regarding how you manage your firm. When setting your premium, how you manage your firm is considered. Some important firm management factors include:
- How do you calendar important dates?
- How many non-attorney staff do you employ?
- Do you use engagement letters and non-engagement letters?
- Do you initiate lawsuits or arbitration to enforce the collection of unpaid fees?
When not managed properly, these tend to be areas that can turn into claims down the road.
Read about common misconceptions here.
Calculating the cost of Professional Liability Insurance
With over 2,000 solo attorneys currently insured at Protexure, the average annual premium is about $2,500. However, based on numerous factors, the premium can vary greatly. Here are a few examples of what an attorney could pay depending on policy limit and deductible.
- Example 1:
- First-year policy, $100,000/$300,000 limits with a $1,000 deductible.
- Areas of Practice include criminal law and family law
- Annual Premium year 1: $600 (our minimum premium)
- At year 5, this same firm’s premium: $1,000
- Example 2:
- First-year policy, $500,000/$1,000,000 limits with a $2,500 deductible
- AOPs include commercial business, real estate, and will/trusts
- Annual Premium year 1: $1,070
- At year 5, this same firm’s premium: $2,400
- Example 3:
- First-year policy, $1,000,000/$2,000,000 limits with a $5,000 deductible
- AOPs include real estate, wills/trusts, and personal injury
- Annual Premium year 1: $1,610
- At year 5, this same firm’s premium: $3,000
Many factors are evaluated when determining a solo attorney's insurance cost. A large range exists between premiums that solo attorneys pay for their Professional Liability Insurance.
However, most attorneys realize that the cost of insurance is a small price to pay compared to the stress and risk of not having it.
At Protexure, we specialize in providing coverage for attorneys like you. We recommend attorneys fill out our risk-free quote form on our website so we can best serve their needs. Based on your firm's characteristics, we can provide you with the policy you need.
Questions? Get in touch.
