Ask the Right Questions When Shopping for Malpractice Insurance
Every one of us has heard the pitches. “Bigger is better.” “We’ve been in business for over 100 years so we’re the one company you can trust.” “We’ve got the one thing you can’t live without.” “We’re your one-stop shop for everything you need.” “We won’t be undersold.” Celebrities sing their praises, and the commercials tout all the ways you’ll be better off if you make the buy.
Speaking personally, I’m one of those guys who just doesn’t but into the hype. The recent meltdown of the cryptocurrency exchange FTX is a great example of why. Hype is just that, hype. Here's how I see things. When it comes to spending money on something, most of the time you get what you pay for. For example, while a $39 knockoff Rolex may make you look good for a short time, don’t try wearing it in the rain, and don’t be surprised when the gold rubs off.
My point is this. Take whatever sales pitch you hear with a grain of salt. Celebrities don’t necessarily know anything more than you do, and while some commercials may be entertaining, that shouldn’t be the reason why you decide to make a purchase. A better approach is to be proactive and do a little investigation. At a minimum, check out product and company reviews and ask the right questions prior to making any purchase decision.
Now, I need to be clear here. This isn’t a “why you should buy from ALPS” piece. My intent is to try to help others help themselves when it comes to purchasing malpractice insurance. Should some salesperson ever tell you they can beat every competitor out there on price, ask yourself if that’s all that matters. If so, fine. Pull the trigger and make the purchase. They may or may not raise your rate next year, they may or may not remain in your market long-term, and the policy may or may not provide the coverage you think it does. Again, you get what you pay for.
Understand that an insurance company’s ability to remain in any market is going to depend upon it receiving an appropriate premium for the risk assumed, its acumen in making wise investment decisions, and its success in responsibly managing its claims. If an insurer is selling policies at a discounted price in order to sell as many policies as they can, that spells trouble. Remember that old joke about GM? GM lost money on every car they sold, but that was okay because they made up the difference in volume. Well, we all know how that played out. Its bailout wasn’t cheap.
If "what’s this going to cost" isn’t the right question, what is?
The one overarching question you should be asking is this. What are my dollars actually buying? Price is just one piece of the equation. In order to fully understand what your dollars will be buying it’s worth seeking answers to a few additional questions. An important one to start with would be how much coverage will the policy actually provide? By way of example, there is a huge difference between a policy that has defense costs inside limits (often referred to as a self-cannibalizing policy) and a policy that has defense costs outside policy limits. Often a low-price quote is an indicator that defense costs are inside limits, that the deductible is high, and/or that policy limits are low. Wouldn’t you want to also know if the insurer is financially stable? Looking up a company’s AM Best rating would be a good place to start. And finally, has the insurer ever pulled out of one or more markets, and if so, why? You’ll never know if you don’t ask.
Insuring the Business Risks of a Law Practice
Learn the basics of Lawyers' Professional Liability Insurance, understand when to purchase, know what your dollars will buy and a few tips when applying for coverage! Check out the ALPS Guide To Purchasing.
If you are one who prefers to work with an insurance company that takes the time to get to know you, values your business, and invests in your profession in some manner, then don’t minimize the importance of getting answers to questions regarding the “softer” issues. Are you able to call and ask questions of the decision makers? Does the company give back to the legal community? Do they offer risk management and educational resources? Are all claims staff licensed attorneys? Of course, all of this will matter more to some than others and that’s fine.
In sum, try not to focus solely on price and/or buy into the sales hype when shopping for malpractice insurance. I know it can be tempting and it’s so easy to do; but doing so can be a financial misstep. The reason is you’re about to pay to make certain that someone has your back should the worst happen. Focus on that, on what would happen if and when a claim arises. Who is this company really and just what are they saying they will do for you? I believe this to be a better perspective from which to make any insurance decision. After all, do you really want the company you’re about to place in the position of “having your back” be the one who threw you a lowball price?
Take the time to ask the right questions. Learn to compare policies on the coverage issues that are important to your practice and compare the services that are important to you. And of course, always keep in mind that you get what you pay for.
Authored by: Mark Bassingthwaighte, Risk Manager
Since 1998, Mark Bassingthwaighte, Esq. has been a Risk Manager with ALPS, an attorney’s professional liability insurance carrier. In his tenure with the company, Mr. Bassingthwaighte has conducted over 1200 law firm risk management assessment visits, presented over 550 continuing legal education seminars throughout the United States, and written extensively on risk management, ethics, and technology. Mr. Bassingthwaighte is a member of the State Bar of Montana as well as the American Bar Association where he currently sits on the ABA Center for Professional Responsibility’s Conference Planning Committee. He received his J.D. from Drake University Law School.