How Is Professional Liability Insurance Priced?

How is Professional Liability Cost Determined?

There are many factors that go into determining the cost of professional liability insurance, therefore, it is important to keep in mind that the cost of insurance can vary widely from one attorney to another.

Areas of practice is a significant driver when determining professional liability insurance premiums. Certain practice areas generate a higher frequency or severity of loss, and insurance companies consider this when setting their premium rates.

To establish malpractice coverage rates, insurance companies evaluate their loss experience to determine practice areas that impact the frequency and severity of losses. In addition to practice areas, there are many other factors that are considered in determining premium. Other factors include:

• CLAIMS HISTORY:

  Firms with claims on file should expect to pay more than a firm that has been claims free. Firms that have had no claims on file are viewed favorably by the insurance company and are more likely to receive discounts.

• NUMBER OF INDIVIDUALS COVERED:

  The likelihood of a claim occurring goes up with each individual attorney added to a policy, therefore, the insurance premium typically increases as well.

• ANNUAL REVENUE:

  Similar to the number of attorneys, as annual revenue goes up, so does insurance premium. With more business coming through the door, there are more opportunities for a claim.

• LENGTH OF TIME THE FIRM/ATTORNEY HAS MAINTAINED COVERAGE:

  Due to the industry wide practice of step ratings, premium is less when a firm initially obtains insurance, and increases gradually over the years. Once a firm is considered mature, the premium will level out to a consistent rate after about 5 to 7 years.

• PRACTICE LOCATION:

  Where a practice is located can affect the cost of coverage. Locations that typically see higher claims activity tend to have higher premiums.

• COVERAGE LIMITS AND DEDUCTIBLE:

  The limits of liability and deductible chosen for a professional liability policy has a significant influence on premium. More insurance means a higher premium.

• PRACTICE MANAGEMENT:

  One of the most effective ways to save on legal professional liability insurance premium is by implementing the proper practice management protocols to mitigate the potential for a claim.