Are you an attorney who is considering a solo practice and curious about the cost of malpractice insurance? Or do you already have an established solo practice, but are wondering if you 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. More often than not, the attorneys we talk to realize that the peace of mind that comes with having malpractice 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 basic factors to consider is the amount of coverage you need as a solo attorney.
There is a large range of limit options you can choose from. 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.
You can also choose different aggregate limit options such as $500,000 and $1,000,000. There are several other options out there, 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 common deductibles are $2,500 and $5,000. However, if you want to save on premium, you can have a deductible of $10,000 or higher.
Additional Coverage Options
In addition to the limits of liability and deductible, there are some optional additional coverages available that will affect the premium that many attorneys find to be worth the additional cost.
You can opt for an aggregate deductible instead of per claim. 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 the claim expenses so that they do not reduce the limit of liability you have chosen.
Finally, you can select First Dollar Defense which protects you from paying the deductible when there are only defense costs paid out in a claim. Most attorneys only select 1 or 2 of these options as each option typically will increase the premium by about 10%.
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 go into determining 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, one of the biggest factors that come into play is the firm’s Area of Practice breakdown. There are some practice areas that have a higher propensity for claims than others.
Out of the most common areas of practice for solo attorneys, the ones that are 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
If you are considering where to set up shop, you should also keep in mind that some locations will cost more than others. Office locations that are in or near large metropolitan areas will tend to have higher premiums than offices in small towns or less populated areas. This premium difference can be attributed to a higher rate of risk due to higher population density and the possibility of more claims.
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 as a result of an error, you will see your premium increase. From our many years in business, we have noticed that firms that have one claim tend to have additional claims in the future at a higher rate than firms that have never had a claim. In some cases, the insurance carrier may even choose to not renew the law firm’s policy in the next year.
Annual Hours Worked
Typically a solo attorney will not come across this pricing factor as most solo attorneys work at least 40 hours a week. But, for attorneys working part time, they can experience a pricing discount for the annual hours worked.
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 big pricing factor you will experience is step rating. Step rate is an industry wide pricing structure where the cost of insurance gradually increases during the first few years of coverage.
Professional liability insurance is most commonly provided on a claims made policy. Because of this, your first year of coverage will be the least expensive year. The cost of insurance 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 prior to the Inception of your policy, no coverage will be available to you.
Going forward in the future, if you maintain continuous malpractice insurance, the retro date will remain the day you started your first policy.
As an example, let’s say you started your first policy on January 1, 2018 and continue to carry it and renew it each year on January 1. Then on March 1, 2020 you become aware of a potential claim where they allege that you committed malpractice on February 1, 2018. The policy that would respond to that claim is the policy when the claim was made in 2020. Since your retroactive date is January 1, 2018, you had coverage on February 2018, and you are covered.
As you can see from this, the exposure continues to increase as you maintain continuous insurance. As a result, insurance companies take this into consideration 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
No matter the purchase, everyone wants to know how they can save money. 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 being said, if you implement certain 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 that there are numerous questions on most applications with regard to how you manage your firm. When setting your premium, the way you manage your firm is taken into consideration. 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?
These tend to be areas that when not managed properly can turn into claims down the road.
Calculating the Cost of Professional Liability Insurance
With approximately 2,000 solo attorneys currently insured at Protexure, the average annual premium is about $2,350. But, based on the 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: $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. AOP’s include commercial business, real estate and will/trusts. Annual Premium: $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. AOP’s include real estate, wills/trusts and personal injury. Annual Premium: $1,610
At year 5, this same firm’s premium: $3,000
Many factors are evaluated when determining the cost of insurance for a solo attorney. There is a large range between premiums that solo attorneys potentially pay for their professional liability insurance.
However, the one thing that most attorneys come to realize is that the cost of insurance is a drop in the bucket compared to the stress and risk of not having it.
At Protexure, we specialize in providing coverage for attorneys just like you. It is recommended that attorneys fill out a quote so we can best service their needs with plenty of information. We then can provide you the exact policy you need based on the characteristics of your firm.