This is part two of my blog discussing the basic pricing considerations that go in to an underwriters considerations when they pricing your lawyer’s professional liability insurance. We are working our way through a basic application and addressing the questions in the order they are often posed. In this blog we will look at why underwriters ask for a law firm’s revenue, the number of attorneys and a breakout of the firm’s areas of practice. This is a general overview, if you have any specific questions or concerns please call me to discuss them or call your current agent.
The next question in many of the lawyer’s professional liability insurance applications is for the firm’s revenue for gross billings. The revenue numbers you disclose may impact your premium; some underwriters are looking to see if your revenue per attorney is unusually high or low and may use that as a factor in their final premium calculation. Several insurers also take the firm’s revenues in to account when deciding whether or not to offer coverage. If a firm’s revenues are too low the question of its’ long term viability may be called in to question. Finally, the limits and deductible offered can be impacted by an underwriters concern with your ability to pay the premium generated by high limits of liability; or your ability to pay a higher deductible if they deem your revenue too low to support it.
As we have already discussed, there is no standard application for lawyers professional liability insurance. When it comes to requesting the attorney’s information, some applications ask only for the number of principals and non principal attorneys, while others ask for a comprehensive list of the attorneys names, their Bar numbers and years admitted, social security numbers, number of hours worked, prior employers, titles, and earliest date of employment with the applicant. Thankfully, a very few also ask for employment histories and the reasons for any gaps in the employment dates. Underwriters may also ask for a count of the attorneys in the prior year or two to allow them to gauge if the firm is growing or shrinking.
The attorney information that will directly impact your premium includes; the number of attorneys, the number of hours each works for the firm and the number of years each attorney has been employed with the firm. We will leave aside each individual attorneys area of practice and claims history for the time being. The basic number of attorneys is one of the key building blocks of your premium. Most underwriters arrive at a ‘base rate’ premium for your firm and then multiply it by the number of attorneys; for this reason we want that count to be accurate, not as of the date of the application but as of the effective date of policy. Any additions or deletions of attorneys during the application process should be provided to your insurance broker as soon as possible. If one or more of your attorneys works a reduced or part time schedule it is important to include this information in the application (even if not an application question); most underwriters offer some premium reduction for part time attorneys. It is always wise to ask. The final pricing point to consider here is the number of years each attorney has been employed with the firm. The more years an attorney has been employed with the firm the more premium will be charged based on the ‘prior acts’ exposure. Again, each underwriter treats this questions differently, some charge solely based on the firm’s years of prior acts; however, many can offer an average prior acts charge by using each individual attorneys date of hire. Again, the key is to provide this information and ask the question.
It is important at this point in our discussion to be certain that the policy form includes coverage for the various classes of attorney the firm is employing. You, or your agent, must be certain to review the definition of insured to confirm that if you have independent contractors they are included in the definition of insured. This investigation should be conducted for each classification of attorney. It is also important to be aware that, for most insurance companies, attorneys who join during the policy year are not charged an additional premium and attorneys who leave during the policy year do not generate a return premium. This can be qualified in the policy depending on the number of attorneys joining or the percentage growth in the attorney count during the policy year. Again, each individual policy can be unique.
Our final section for this blog is the areas of practice question in the application. We will only touch on it briefly here; it truly deserves its’ own blog. Keeping it simple, certain areas of practice are more difficult and/or expensive to insure; at this time, Federal securities, copyright/patent/trademark and class action plaintiffs are among the most difficult classes to insure. The simplest and least expensive are typically; criminal, insurance company defense and employment law (management only). The other practice areas fall somewhere in between and their treatment can vary by geography and an individual insurance company’s experience. The most important advice I can offer here is to completely describe your practice. Certain categories (tax work, corporate law or real estate, for example) are very broad and there can be significant premium variances within each category. You will also find some underwriters treat some of these areas of practice as ‘preferred’ categories where others will levy significant debits.
To wrap us this installment; tell your story. Do you have minimum requirements of your attorneys in terms of education, experience, training or continuing education that, you believe, separate you from your peers? If you are involved in a higher hazard area of practice; are you the expert others turn to? Have you, literally, written the book? This type of information, while not requested in an application, can mean the difference between receiving competitive insurance terms or a declination. Underwriters will take a risk if we provide them with a credible reason to do so.