Five Things You Can Do to Help Keep Your Malpractice Insurance Premium in Line
I have been a risk manager here at ALPS for well over two decades now, which helps explain why I personally view the purchase of legal malpractice insurance as a necessary expense. Trust me, I know firsthand. Having to face the fallout of a malpractice misstep while uninsured is something I would never wish upon any lawyer because, for some, the final outcome can so easily be a tipping point toward financial ruin. That said, the interesting issue for me is the affordability question; and while reasonable minds are free to disagree as to the definition of affordability in this context, I thought sharing five tips as to how one can favorably influence a quoted rate might be useful. After all, everyone wants to save a little green whenever and wherever they can.
1. When I was much younger and in the early years of adulthood, the initial deductibles I chose for my homeowners and auto policies were low for a hopefully obvious reason. Cash flow in the early years meant that I couldn’t easily afford to cover a high deductible in the event of a claim. Of course, over time, my financial situation improved to the point where I could afford to take on a bit more of the risk, which is when I started to responsibly raise my deductible as a way to save a little money. So, my first tip is if you can afford to take on additional risk, consider raising your deductible.
2. Tip number two is a bigger deal than many lawyers seem to think. Let me start by saying that I do realize, and in fact agree, that all lawyers deserve to be paid for all of the legal work they do. I also sympathize with the view that malpractice insurers should mind their own business and not dictate how any lawyer should run his or her practice. Unfortunately, for some lawyers, there is an elephant in the room, which is failing to accept the reality that there really is a strong correlation between aggressive collections actions and malpractice claims. If you regularly sue for fees, meaning 2-3 times or more every year, that decision is costing you money. Thus, tip number two is if you regularly sue for fees, consider stopping this practice and focusing on finding ways to prevent serious delinquencies from ever developing in the first place.
3. Now, I have a question for you. If you wanted the best price for a home you are about to sell, what would you do to try and get the best price? I think most sellers would do all they could to spruce up the place. It’s all about trying to show their home in the best light. In short, presentation matters in all kinds of financial transactions, be it a loan application, selling property, or an application for malpractice insurance, which brings me to tip number three. Your application is the one chance you have to set the right impression so make the most of it. For example, never submit a poorly written or partially completed application. Make sure every question is answered honestly and thoroughly. If the application happens to be a renewal application, never sit on it until the last minute. Do all you can to see that it’s submitted well in advance of the deadline. Again, the information you are presenting and how you present it matters.
4. I think it’s safe to say every lawyer understands that a firm’s claims history impacts the premium number. All things being equal, a firm that has never reported a claim in the last five years will pay less than a firm that has reported four claims in the past five years, two of which resulted in a six-digit loss payout. Accordingly, tip number four is to encourage you to proactively manage your firm’s claims history by way of a robust risk management program. Insurers prefer to insure firms that consistently use engagement and closure letters, rely on effective rules-based calendaring and docket control systems, have deployed a state-of-the-art conflict checking system, and regularly conduct file reviews just for starters. Time spent on developing and maintaining risk management processes and procedures will be well worth it in the long run.
5. Finally, I’d like to briefly talk about car insurance rates. The cost to insure an expensive performance car such as a Porsche 911 or an Audi A8 is going to be far higher than the rate to insure something more budget-friendly such as a Hyundai Tucson or a Subaru Outback. The reason is the associated risks with the class of cars these vehicles represent are not the same. In a similar vein, the associated risks with any given practice area can vary greatly. This is why premiums for criminal defense lawyers are lower than those of plaintiff personal injury lawyers. With this in mind, tip number five is to have you do what you can to minimize the associated risk of your practice areas.
Here are a few ideas as to how to do this. Make sure your application and every renewal application accurately reflect the areas of practice you currently practice in. For example, if you transitioned away from divorce law the past year or so, make sure to remove that practice area from your current application. The risk profile of a broad-based general practitioner is different than that of a specialist, so consider limiting your practice areas if you are more of a generalist. And last, but not least, don’t ever dabble in any practice areas you have limited experience with. Straying from the practice areas you normally focus on is a bad idea. I liken that to taking a Porsche 911 out on a racetrack before ever taking the time to learn how to drive the thing. So not a good idea.
 For additional information on how the cost of malpractice insurance is determined see: https://www.alpsinsurance.com/about/true-cost-of-legal-malpractice-insurance
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.