How to Save Costs on Professional Liability Insurance for Lawyers
Whether you just opened your first practice or have been in business for quite some time, you may find this short guide on how to save costs on professional liability insurance for lawyers helpful.
When you run a small- to mid-sized business, what may seem like minor costs can pile up over time. This, in turn, could affect your budget as well as your bottom line.
Keeping track of recurring expenses and avoiding overpaying for malpractice insurance – among other things – can help you plan your spending wisely while still getting the most out of your coverage.
A Quick Note on the Pricing of Malpractice Insurance
When you start a new policy, you may be offered a discount for the first few years of that policy. The first year typically carries the biggest discount. However, as your risk exposure goes up with each passing year, your discount may be removed or reduced, resulting in higher premiums.
Some insureds may see this as a rate increase, but this is not the case. In reality, six or seven years after the start of the policy, the likelihood of a prior act claim decreases, and your provider may lower your premiums.
This aspect of the pricing of malpractice insurance can sometimes cause confusion, so you may want to keep it in mind when exploring new policies.
5 Ways to Save Costs on Professional Liability Insurance for Lawyers
The tips below provide some of the most effective ways to cut back your costs on legal malpractice insurance. However, many other factors may come into play. To help you make educated decisions about your business, consider talking to an insurance provider.
1. Set Up Your Internal Procedures with Risk Management in Mind
One way to help lower the costs of your malpractice insurance is to develop and implement internal procedures that may help reduce the risk of malpractice claims. Examples include:
- Calendar controls
- Docket management systems
- Protocols for identifying conflicts of interest
- Drafting engagement, disengagement, and non-engagement letters that clearly identify the client, the legal matter at hand, and the scope of your services
Make sure to set out all risk management procedures in writing and review them on a regular basis.
It may also be a good idea to sign up for risk management training. Some insurance providers may give you a discount if you complete their risk management or loss prevention programs. You can typically take these classes online, on your own time, and with minimal disruption to your schedule. As a bonus to lowering your insurance costs, you may learn new information that could help reduce your exposure even further.
2. Report Any Part-Time Employees
Many states consider attorneys who work less than 1,000 hours per year as part-time employees. If some of the lawyers in your firm only work part-time, insurance providers may reduce your rates.
With this in mind, your attorneys who are working less than 1,000 hours should be reported as part time (versus full time) when applying for malpractice insurance.
3. Look into Selecting a Higher Deductible
The deductible is the amount you are responsible for paying before your coverage takes effect in the event of a covered claim. If your deductible is $5,000, and a hypothetical covered claim settles for $150,000, you will have to pay $5,000, and your insurance company will cover the remaining $145,000, subject to the terms of the policy.
Selecting a higher deductible may help reduce your insurance premiums. However, while this strategy may result in long-term savings, it could be riskier in the short term, as you would have to cover more of the costs of potential lawsuits before the insurance kicks in.
4. Consider Dropping High-Risk Practice Areas
Some practice areas may be attracting more malpractice claims than others. In its latest Profile of Legal Malpractice Claims
, the American Bar Association reported that the top ten practice areas for claim frequency in 2016–2019 were:
- Personal injury – plaintiff (16.30%)
- Family law (12.81%)
- Real estate (12.37%)
- Estate, trust, and probate (11.98%)
- Collection and bankruptcy (8.21%)
- Business transaction/commercial law (7.03%)
- Criminal law (5.95%)
- Corporate/business organization (5.22%)
- Patent, trademark, and copyright (3.05%)
- Personal injury – defense (3.01%)
Bear these statistics in mind when submitting your revenue or hours per practice area. If a high-risk field only makes up a small portion of your work, consider dropping it from your practice entirely. The resulting savings in insurance costs may make up for your lost earnings.
Conversely, you may want to resist the temptation to reduce costs by dabbling in “safer” practice areas. Insurance providers may end up charging you more for practicing in a field you do not have sufficient experience in.
5. Avoid Disciplinary Complaints
Disciplinary complaints may increase the risks of malpractice claims and, by extension, your insurance costs.
Do your best to maintain good attorney-client relationships. Return calls promptly, always keep open lines of communication, and ensure clients receive regular and accurate updates on the progress of their matters.
With Malpractice Insurance, Quality May Be More Important Than Price
When shopping for professional liability coverage, remember that the price is only one of many factors to consider. An experienced insurance provider can help you make an informed choice and select a policy that is both cost-effective and addresses the unique aspects of your practice.
In any case, however, “going bare” and not buying malpractice insurance to save on costs may not be a good idea. It can only take one dissatisfied client to trigger a claim. Even if that claim is unfounded and you end up winning the case, you may still incur significant – and often entirely avoidable – expenses along the way. Investing in malpractice coverage now can help you save in the long run.
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This information is provided for general informational purposes only and is not intended to provide individualized advice. All descriptions, summaries, or highlights of coverage are for general informational purposes only and do not amend, alter, or modify the actual terms or conditions of any insurance policy. Coverage is governed only by the terms and conditions of the relevant policy.