As an attorney in a solo or small firm, you are probably familiar with the professional liability renewal process. Picture this: Your policy is set to expire soon, and you must decide if you want to remain with your current carrier or switch to a new one. You may be in the process of evaluating various quotes, comparing policy terms, and determining whether your current carrier is still the right fit. During this evaluation, many people are so focused on the reasons why they should switch carriers that they often neglect the reasons why they shouldn’t change. Indeed, valid reasons exist for staying with your present carrier.
Shopping around for insurance and doing your due diligence in securing the proper coverage at an appropriate rate is simply good business. However, if you switch carriers frequently, you may be doing both your firm and yourself a disservice. Below, we examine why it may be a better business decision to simply stay with your present carrier.
Continuity and Renewal Terms if You Have a Claim
If insureds switch carriers frequently, a greater chance exists that they could face an issue during renewal if they must make a claim. If your firm doesn’t have history built up with a carrier, and you present a claim in which a significant dollar amount must be paid, the carrier may not want to renew your coverage. But non-renewal may present less of a threat if the firm has been insured with the same carrier for a significant time.
Additionally, presenting a claim automatically triggers a review into the amount of premium paid into a program over time and could factor into a renewal decision and/or future premium charges. However, a 10-year insured likely will see little-to-no impact on their premium when they present a “nuisance” claim.
When a firm is non-renewed because of a small claim, they will have to explain on future applications why this occurred. Non-renewals cause underwriters to think twice about insuring a company and can affect both a firm’s insurability and their premium on subsequent applications.
Claims Handling
When switching carriers, the underwriting company requires the insured to provide a loss run report. Loss runs provide documentation on claims history, including paid claims and reserved funds. If you switch carriers frequently, tracking down loss runs may not only be time-consuming, but also difficult, potentially adding a greater headache for the insured, especially since most carriers document their loss runs differently.
If your claim is currently in process, switching carriers can be even more complex. Managing a relationship with multiple carriers — the previous carrier who is working on your claim along with your current insurer — can be extremely challenging. The current carrier will require continuous updates on the status of your claim and paid amounts. Moreover, regardless of your claim’s history, gathering loss runs from multiple carriers each year can prove to be an arduous process.
Potential Coverage Issues
When switching carriers, pay close attention to both the language of the policy and its coverage. Policy language normally differs from one policy to another, as do provisions and endorsements. Coverage amounts also can vary from one carrier to another, and not knowing the differences can prove costly. When switching carriers, you must understand the dollar amounts associated with each type of coverage. In fact, sometimes, a lower premium can also translate to less coverage for the firm ― a scenario you especially want to avoid.
If an insured switches carriers every year, they could possibly save a few dollars. But, if that same insured must make a claim, they could find themselves in circumstances in which they have less coverage than they realized. Understanding all the policy features among different carriers can be difficult, and the insured could end up in a situation in which they must pay out of pocket on a claim, which could potentially cost your firm thousands of dollars.
Additionally, reviewing multiple policies every year can be a time-consuming process that takes value from both the practice and the team.
Most Underwriters Will Question Multiple Switches/Carriers
In addition, underwriters sometimes do not look favorably upon firms that have retained more than two carriers during a five-year span. They’ll ask why the firm kept switching carriers, and they might not offer certain terms or pricing if they feel as if they don’t completely understand all the aspects of a firm or that they are missing something. Before releasing their terms, they’ll likely ask additional questions. Also, underwriters often will not offer rates as competitive as they might if they recognize an opportunity to build a history and long-term relationship/partnership with your firm.
Ease of Renewal Process
Typically, switching to a new carrier is much more time-consuming than a simple renewal process with the insured’s current carrier. Rather than simply completing a renewal application and sending payment, the insured is subjecting the firm to new underwriters every year. Consider your time and its value. Are you too busy to effectively evaluate all your new options? If the answer is “yes,” then you may want to stay with your current carrier to avoid the possible consequences of switching to one that you haven’t had time to thoroughly vet.
Tail Coverage/Provisions
Most carriers offer a free retirement/non-practicing extended reporting period after three consecutive years of insurance coverage with their program. Therefore, switching each year to save a few dollars can eventually be costly, especially if you’re forced to pay 250 percent of the expiring premium for tail coverage. If you switch carriers every year, an unforeseen retirement or stoppage in practice could prove even costlier.
While switching carriers every year to save a couple of extra dollars may be enticing, in the long run, you may not save anything at all. The best way to protect your firm is to understand the benefits of remaining with the same carrier for an extended period of time. And, by that same token, if you do decide it’s time to switch carriers, understanding both the costs and benefits is crucial.
