Joe Barnard, CPA

Why Did My Malpractice Insurance Rates Go Up?

If your malpractice insurance rates are rising even though you haven’t had a claim, several common factors may be involved.  

Rates depend on a number of factors, many of which don’t have anything to do with whether you file a claim or take advantage of the many additional services your professional liability company offers to policyholders.

Factor #1: Time in Practice

Legal malpractice insurance is most affordable if you buy it in your first year of practice (which also ensures that you are fully covered as you go forward in your career). As you gain more experience over the first few years of your career, your insurer takes on more risk to cover you. This is simply because of your longer history of practice. Most insurance companies use what’s called a “step rate factor” to calculate your risk. New attorneys get a rate factor of 1.0, and that factor increases gradually over time (usually about seven years), leveling off at around 2.4.

Rate increases of about 2–5% per year during these first few years are normal. A more dramatic jump, on the other hand, like a 15–25% increase that is unexplained by other factors, could indicate it’s time to shop for a new policy.

Factor #2: Increased Responsibility = Increased Risk

As you gain experience, you are also likely to take on increased responsibility. If you branch out from your primary practice and add a new practice area, this can affect your rates. Some areas of law have much higher claim rates than others. For example, a 2015 study of multiple professional liability insurers found that attorneys practicing trusts, estates, and probate law saw more claims than average; those practicing family law, on the other hand, saw far fewer.

Each area of practice is assigned its own numerical risk factor, much like the factor corresponding to time in practice. Attorneys or firms that practice multiple areas of law are assigned weighted averages depending on what proportion of their practice is devoted to each practice area. As a result, the addition of a practice area could have the effect of either increasing or decreasing your premiums, depending on the risk associated with it.

It’s important to update your insurer when you begin practicing new areas of law to ensure that your coverage is appropriate.

Factor #3: The Number of Attorneys at Your Firm

Insurers base premiums for firms in part on the number of attorneys they insure, and adding attorneys to a firm policy typically costs less per attorney than purchasing stand-alone individual policies. On the other hand, if the number of attorneys in your firm is declining, this could cause the per-attorney rate to go up.

Tips for a Better Rate

While you can’t do anything about natural, time-based increases in your rates, you can take some steps to keep your premiums down.

  • If you’re just starting out and aren’t sure what your firm’s practice areas will be, think about choosing lower-risk disciplines. You can consult with an agent to find out what practice areas get the best rates.
  • Work with your malpractice carrier to implement approved risk management practices and programs.
  • Consider plans with higher deductibles and lower coverage limits if they are appropriate for your practice areas and risks.
  • Compare plans every 3–5 years, or more often if you see a dramatic rate jump that’s not connected to a significant claim.

If your premiums have gone up unexpectedly or if you’re unhappy with the quality of service your professional liability insurance carrier provides, talk to ProDefender today.

We can give you a quote from an application you’ve already completed for another insurer so you don’t have to fill out multiple forms! Upload your most recent completed application to the ProDefender website to start the process. To schedule a consultation, get a new quote, or talk to us about your options, call us at (866) 434-8557 or email us at info@prodefender.com.

 

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