Factors That Influence Lawyer’s Malpractice Insurance Policy Premium
Factors That Influence Lawyer’s Malpractice
Insurance Policy Premium
Lawyers’ malpractice insurance or legal malpractice insurance is a coverage that protects law
firms and attorneys against claims of error or omissions and negligence in their work. The policy
covers court fees, legal costs, and damages and settlements that may result from the lawsuit. In most cases, these policies cover professional negligence and breach of duty. Some policies
also cover misrepresentation, administrative errors, and cyber liability. But the coverage plan isn’t the only thing that determines a lawyer’s malpractice insurance
policy premium. The article covers all factors that influence the premiums in a lawyer’s
malpractice insurance policy.
Which Factors Affect Lawyer’s Malpractice Insurance Policy Premiums?
Two types of factors can affect the premiums in these policies; internal and external factors. The
law firm or attorney controls the internal factors. These include the firm’s size, number of claims, type of practice, and geographical location.
The external factors are out of the lawyer’s control. These may be state regulations, economic
conditions, and even the insurance company’s parameters.
Here’s how different factors affect this policy’s premiums.
The policy limit is the maximum coverage a lawyer gets from the insurance company. Typically, a higher policy limit comes with a higher premium. Since the insurance company has to pay more money in case of a higher policy limit, it charges more in premiums to compensate for the additional risk. However, policy limits and premiums are not always directly proportional. In some cases, the premiums might not be too high for higher policy limits. For example, if a law firm handles low-risk cases, it might not see a higher premium even if the policy limit is higher.
The deductible is the amount the attorney has to pay out of pocket before the insurance coverage kicks in. Deductibles ensure that law firms do not use their insurance for small claims and only benefit from it in larger claims. A high deductible translates to a low premium. When the deductible is high, the policyholder pays more out of their pocket before the insurance company starts paying. So, the insurer takes on less risk and charges a lower premium.
Areas of Practice
The area of practice refers to the type of cases the law firm deals with. Attorneys in high-risk
areas of practice have to pay higher premiums since there’s a greater likelihood of malpractice
and resulting claims.
The following areas of practice generally have higher premiums:
- Medical malpractice lawyers
- Securities law (lawyers representing clients in financial transactions)
- Intellectual property law (trademarks and patents)
- Employment law (discrimination, wrongful termination, and wage and hour claims)
On the other hand, real estate and family lawyers are considered low-risk policyholders. So they
have lower premiums.
Number of Attorneys
The more the number of attorneys in a law firm, the higher the premiums are. A larger law firm
typically has more clients and more attorneys. So, there’s a higher risk of claims, malpractice,
Insurance companies see the experience as a positive attribute, relating it to better knowledge and
expertise. Experienced attorneys also have strong risk management practices and know how to avoid claims. They also have a solid track record of successful case outcomes. A law firm or an attorney with higher experience pays a lower premium because they are expected to make fewer errors.
The territory in which the lawyer or law firm practices can also impact the premium. For one, a
territory with a higher population density generally has higher premiums because there’s a
larger risk of claims. Secondly, the legal environment of a county also determines the premiums. For instance, if an area has a history of awarding large amounts of damages, the insurers in that county will charge higher premiums. On the contrary, law firms in low population density areas with low damage amounts have lower premiums.
The number of hours a lawyer works also determines their premium. A lawyer who works more hours will likely have higher premiums. The insurance company sees this as a greater risk and charges accordingly. If a lawyer is spending more hours at work, it could mean two things; they have more work, or the cases they work on are complex. Either way, there’s a higher risk involved. So, the insurer will charge a higher premium. Meanwhile, lawyers that work fewer hours are considered to have fewer or simpler cases. Their risk is lower, and so is the premium.
The claim history refers to the number of claims a law firm or lawyer has faced in the past. An
attorney with a notable history of malpractice claims will have to pay a higher premium. The severity of the claims can also influence the premiums, with more severe claims warranting higher premiums. Meanwhile, law firms with no history of claims or very few claims pay a lower premium.
Years of Continuous Coverage
A law firm with a long history with an insurance provider pays lower premiums than the insurer’s new clients. The insurance carrier can assess the law firm’s risk during this period. If the insurer finds the risk manageable, it will charge the firm a lower premium for loyalty. Newer clients pay more premiums even if they have the same risk and area of practice as older clients. Alternatively, there is a gradual increase for the first 5 years of every professional liability policy called a step rate factor in the industry. The very first year, the insurance carrier only covers you for alleged errors performed that year. After the next year ‘ renewal, the carrier takes 2 years of coverage, thus, the risk is higher, especially without having any previous track record for the firm so the carrier will charge more for the renewal policy.
This increase continues for approximately the next 5 years at which point the firm is considered
fully mature. Provided there are no claims or changes to the number of attorneys or areas of
practice, this increase should no longer be in effect.
Firm Characteristics/Risk Management Practices
If an attorney has good risk management practices, the insurer sees this as a sign of preparedness. Consequently, they lower the policyholder’s premiums. Other characteristics that can reduce premiums are having active client relations and a good reputation in the industry. Similarly, if a law firm invests in ongoing training for its staff or has implemented measures to reduce the risk of errors and omissions, its insurance premiums may be lower.
When determining a law firm or lawyer’s premiums for malpractice insurance, an insurance
company looks at its experience, reputation, area or practice, and claims history. Attorneys with
a lower risk of claims generally have lower premiums than their high-risk counterparts.
The key is to get quotes from multiple providers to find the best malpractice insurance plan for
your law firm.