This type of insurance is essential for lawyers as it helps protect their assets and reputation. Without professional liability insurance, lawyers may have to bear the full financial burden of legal defense and potential settlements or judgments, which can be extremely costly.
While the cost of not having professional liability insurance could be significantly more that the cost of a policy, insurance is still a significant business expense and often times, difficult to estimate on your own.
The cost of professional liability insurance can vary greatly from one lawyer to another and from one firm to another. It's common for lawyers to feel overwhelmed when they see their premium prices fluctuate annually or differ between insurance carriers. This can make the decision-making process more challenging, turning what should be a simple yearly purchase into something that feels more like a necessary evil to be endured.
It can be confusing, but for more than a decade, we’ve been helping attorneys and law firms of all shapes, sizes, and sectors find the best match for their coverage needs and budgets.
Below, we’ll break down everything you need to know about the cost of professional liability insurance. This includes:
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6 Key factors influencing the cost of professional liability insurance
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The Average cost of a policy
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Comparing insurance providers
- Tips to lower your professional liability insurance cost
Factors Influencing the Cost of Professional Liability Insurance
When it comes to the cost of professional liability insurance for lawyers, several key factors come into play. These factors influence the premiums that lawyers have to pay to ensure adequate coverage for their practice. By understanding these factors, lawyers can better assess their risk profile and identify strategies to manage their insurance costs effectively.
Area of Practice
One of the primary factors that impact the cost of professional liability insurance is the lawyer's area of practice. Legal malpractice insurance providers analyze extensive historical claims data to assess the risks associated with different areas of legal practice. These risks are evaluated based on the specific nature of the practice area and the historical claims history related to that particular field.
Lawyers who specialize in high-risk areas of law, such as real estate, plaintiffs' personal injury or wills, trusts, and estates, may face higher insurance premiums compared to those practicing in less risky areas. This is because high-risk areas often involve complex and sensitive cases that carry a higher likelihood of claims being made against the lawyer.
Insurance providers take this increased risk into account when determining premiums. Practice areas with a high frequency of high-cost claims get the highest rate and so on down the line, with low-frequency/low-severity areas being the least expensive to insure.
Firm Size
The size of a lawyer's firm is another important factor that can influence the cost of professional liability insurance. It's a simple principle really - the larger the firm, the more work there is to insure, resulting in higher premiums. So, it's no surprise that a solo attorney is generally less expensive to insure compared to a two-attorney firm.
Larger firms tend to have more exposure to potential claims due to the greater number of lawyers and clients they serve. As a result, insurance providers may charge higher premiums to account for the increased risk associated with larger firms.
However, there's a glimmer of hope for growing firms. Some insurance carriers offer discounts once a firm reaches three or more attorneys. This means that if a firm starts as a one-attorney firm and then grows to a two-attorney firm, it can expect its premium to double. But, if they add a third attorney to the roster, the increase may not be as significant.
Location
A firm's location plays a role in determining the costs of professional liability insurance, as rates can vary significantly depending on the state, county, or whether the firm is located in a rural or urban area.
The historical claims activity in a specific region can impact risk ratings and premiums, with insurance rates subject to annual changes based on the claims experience and associated risks of the geographic location.
States or counties known for being highly litigious may experience substantially higher insurance costs compared to those with a lower frequency of legal disputes.
Limits and Deductible
When it comes to determining the coverage limits and deductibles for their professional liability insurance, lawyers need to carefully weigh their options.
Opting for higher coverage limits can provide a broader scope of protection, giving lawyers peace of mind in knowing that they are well-insured against potential claims. However, this increased coverage often comes with a higher price tag in the form of premiums.
On the other hand, choosing lower deductibles can mean that lawyers will have to pay less out of pocket in the event of a claim. While this may seem like a more cost-effective option upfront, it can also result in higher premiums over time.
In addition, to standard limit and deductible options, there are addition policy features available (i.e. CEOL, First dollar Defense, Aggregate Deductibles, etc.) that provide additional coverage. The additional cost of these features varies but you can expect to pay between 5%-20% of your base premium per additional feature.
By striking the right balance between coverage limits and deductibles, lawyers can ensure they have adequate protection while also managing their insurance costs effectively.
Claim History
A lawyer's claims history is a crucial factor in determining the cost of professional liability insurance. Insurance providers carefully assess a lawyer's past malpractice claims or disciplinary actions to gauge their risk level. Lawyers with a history of such incidents may be perceived as higher risk, leading to increased premiums as insurance companies factor in the likelihood of potential future claims based on past behavior.
To mitigate the impact of a poor claims history on insurance costs, lawyers can take proactive steps to improve their risk profile. This may include implementing stricter risk management practices, maintaining ethical standards in their practice, and demonstrating a commitment to responsible and professional conduct. By showing a dedication to minimizing risks and avoiding future claims, lawyers can potentially reduce their insurance premiums and secure more favorable coverage terms.
Practice Management
Many of the factors we mentioned are, unfortunately, outside of your control. But, there is one factor that is 100% in your hands, good practice management.
A commonly unknown factor that goes into determining your insurance premium is how you manage your firm. Carriers look for a handful of specific firm characteristics and management practices when determining pricing.
For example, the use of a diary or docket system, engagement letters, non engagement letters, and conflict of interest procedures can favorably impact the cost of professional liability insurance.
Many claims and losses result from operational, managerial, and clerical mistakes and inaccuracies. Professional liability insurers not only analyze claims, but look at what causes them and the very nature of the firm. Your price for coverage reflects that analysis.
Other Pricing Considerations
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. Such fees may be avoided by working with an online-only provider. Also, premium payment and financing options can increase your ultimate cost: paying in one lump sum payment avoids interest or finance charges that may be assessed on monthly or quarterly payment schedules.
Finally, it is important to distinguish between cost and affordability when making your purchase decision. Definitely factor in cash flow and the actual price of paying your yearly premium: i.e., cost. But weigh that against the overall effect an uncovered loss could have on your ability to continue in practice or meet your personal financial obligations in the future: i.e., affordability. They are not the same.
Average Cost of Professional Liability Insurance
At Protexure we have experience in determining rates for all types of practice areas. For attorneys purchasing $ 1 million/ $ 1 million limits, we’ve seen customers pay as little as $1,000 per attorney and as much as $8,000 per attorney. However, many customers fall between ranges of $1,000-$2,000 for firms practicing in low-risk areas and $3,000-$5,000 for firms practicing in high-risk areas.
However, it's important to note that these figures are just estimates, and the actual cost can vary significantly based on the factors mentioned above. Lawyers practicing in high-risk areas or with a history of claims may face higher premiums, while those practicing in low-risk areas or with a clean claims history may pay lower premiums.
Comparing Different Insurance Providers
When looking for professional liability insurance, it's important for lawyers to compare quotes from different insurance providers. Each provider may offer different coverage options, limits, deductibles, and pricing.
Lawyers should consider factors such as the financial strength and reputation of the insurance company, the breadth of coverage offered, and the ease of filing claims. It's also advisable to seek recommendations from colleagues or industry associations to identify reputable insurance providers.
By comparing different insurance providers, lawyers can ensure they are getting the best coverage at a competitive price.
Tips to Lower Professional Liability Insurance Costs
To lower the cost of professional liability insurance, there are a few key strategies that lawyers can implement.
Firstly, maintaining a clean claims history and avoiding disciplinary actions is another way for lawyers to manage their insurance costs.
By focusing on risk management practices within your firm, such as implementing proper documentation procedures and conflict of interest protocols, you can demonstrate to insurers that you are a responsible and low-risk client, leading to potential premium discounts.
Secondly, regularly review and update your coverage limits and deductibles to ensure you have the right balance of protection and cost-effectiveness.
Periodically exploring different insurance providers can be beneficial, as pricing from carriers may fluctuate based on their experience in a particular location or overall business portfolio adjustments. Likewise, if you have significant changes in your practice, you might benefit by having a different carrier give you a new review.
And lastly, working with an experienced insurance broker who specializes in professional liability insurance for lawyers can be invaluable. These brokers have extensive knowledge of the insurance market and can help lawyers navigate the available options, negotiate favorable terms, and identify cost-saving opportunities.
By staying proactive and strategic in managing your professional liability insurance, you can effectively lower your overall insurance costs.
