When law firms purchase professional liability insurance for the first time, they often assume their premiums will remain consistent year after year. However, many attorneys are surprised when their renewal premium increases 20-35% in the second year, even if they have not filed a claim or changed their practice. This increase is due to step rate, an industry-wide pricing model that gradually adjusts premiums over time.
Understanding this pricing structure is key to financial planning and long-term coverage stability, so let’s break down what step rate is and how it affects policyholders.
What is step rate?
Step rate is a tiered pricing system insurers use to account for the increasing risk associated with claims-made policies. In a law firm’s first year of coverage, the insurer is only covering potential claims that arise from work performed within that one-year period. As the firm continues its coverage into years two, three, and beyond, the insurer takes on additional risk, covering past work in addition to the current policy period.
This means that with each passing year, the likelihood of a claim being filed against prior legal work increases—and premiums adjust accordingly.
How premiums increase over time
Step rate typically applies for five to six years, with the largest increases occurring between years two and four. After that period, premiums tend to stabilize as the policy reaches "maturity."
| Coverage Year | Estimated Premium Increase | Reason for Increase |
| Year 1 | Lowest Premium | Covers only the first year of work |
| Year 2 | 20-35% increase | Adds coverage for two years of potential claims |
| Year 3 | 15-30% increase | Extends coverage for three years of potential claims |
| Year 4-5 | 10-20% increase | Coverage reaches full risk exposure |
| Year 6+ | Levels off | Considered a "mature" policy |
Knowing this pattern helps firms plan ahead for premium increases and avoid financial surprises.
Factors that influence coverage pricing
While most legal malpractice policies follow a step rate structure, specific increases vary based on:
- Firm size – Solo practitioners may see sharper early increases than larger firms.
- Areas of practice – Higher-risk specialties (e.g., securities law) may face greater pricing adjustments.
- Insurer pricing models – Some providers apply steeper increases upfront, while others distribute them more gradually.
- Policy limits and deductibles – Higher coverage limits and lower deductibles can lead to higher step rate adjustments.
Since step rate models differ among insurers, law firms should compare policies carefully to understand their long-term costs.
Learn more: The Average Cost of Professional Liability Insurance for Lawyers
Do all insurers calculate pricing structures the same?
In short, no. While step rate pricing is common, insurers apply different formulas to determine how premiums increase.
Some key differences include:
- Length of the step rate period – Some insurers adjust rates over five years, while others extend them to six or seven years.
- Variation in percentage increases – Some providers front-load premium hikes into years two to three, while others spread them out more evenly.
- Additional underwriting factors – Premium increases can also be influenced by attorney roster changes, practice revenue, and claims history.
For example, a firm that frequently adds new attorneys may experience increases each year for those newly insured. Conversely, a firm with a stable attorney roster will see step rate effects subside after five years.
What happens if a firm switches insurance carriers?
Many firms worry that changing insurers will cause the pricing structure to reset. However, step rate does not start over if the new carrier honors prior acts coverage.
- Prior acts coverage ensures continuity – A new insurer will cover past work, preventing it from reverting to year one.
- Coverage gaps can reset pricing – If a firm lets its policy lapse, it may have to restart at year-one pricing.
- Insurers may structure it differently – Some providers have steeper early increases, while others spread them out.
Firms should ensure that their new insurer maintains prior acts coverage when switching policies to prevent unnecessary cost increases.
How law firms can manage pricing increases
Although step rate is unavoidable, firms can take proactive steps to minimize its financial impact:
- Budget for gradual premium increases – Expect year-over-year adjustments for at least five years.
- Review policy terms before purchasing – Understanding an insurer’s pricing structure prevents future surprises.
- Maintain continuous coverage – Avoid coverage gaps that could reset pricing increases.
- Consult an insurance broker – A professional can help identify cost-effective policies with manageable increases.
Planning for pricing increases is essential for law firms looking to manage long-term insurance costs effectively. Understanding how premiums will evolve over the first few years of coverage helps firms make informed financial decisions, avoid surprises, and ensure they have the proper protection in place.
At Protexure, we specialize in helping law firms navigate the complexities of professional liability insurance. Our expertise allows firms to find tailored coverage options that provide strong protection while keeping costs manageable.
Estimate the cost of professional liability insurance for the first five years of coverage using the Step Rate Calculator, and connect with Protexure to explore insurance solutions designed to meet the unique needs of your practice.
