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.
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.
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.
While most legal malpractice policies follow a step rate structure, specific increases vary based on:
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
In short, no. While step rate pricing is common, insurers apply different formulas to determine how premiums increase.
Some key differences include:
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.
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.
Firms should ensure that their new insurer maintains prior acts coverage when switching policies to prevent unnecessary cost increases.
Although step rate is unavoidable, firms can take proactive steps to minimize its financial impact:
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.