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5 Key Changes in Professional Liability Insurance for Lawyers Going into 2021

Change is coming. Expect Professional Liability Insurance to change in our post COVID-19 world.

Of course, we can’t predict the future. But we’ve been selling Professional Liability Insurance since 1978. And 42 years of experience leads us to expect these five potential changes as we move into 2021:

1. Price increases.
2. Spikes in claims.
3. Cyber/Data Breach Policies will de-bundle from Professional Liability Insurance.
4. Carriers may leave the market, or non-renew insureds due to losses.
5. You will need to plan for more time and attention when you renew your Professional Liability Insurance.

Price increases.

We predict that some carriers will increase premiums on Professional Liability Insurance. The two main reasons are:

1. Depleted [carrier] reserves from claims in product lines other than Professional Liability.
2. The likelihood of an increase in claims due to legal changes and adaptations related to COVID-19.

Premiums are calculated  to cover expected claims with an acceptable profit margin. Then COVID-19 hit. And courts ruled that claims of a certain nature must be paid without the carriers having had the ability to underwrite for those claims. Recently, in the UK for example, there have been court judgments that ruled business interruption insurance claims must be paid under business policies for COVID-19 situations.

Insurance Business magazine wrote:

“The High Court has today ruled that the majority of businesses who held business interruption insurance and were forced to close due to the COVID-19 pandemic are entitled to be compensated by the insurers and that, subject to the limits of the policy, this compensation should return them to the position they would have been in had the pandemic never happened.”

What this means to US-based businesses is a potential international ripple effect. When carriers are forced to pay claims, this often means that some carriers under-reserved the amounts needed to pay for the losses on certain product lines. Expect adjustments to premiums as the effects of COVID-19  continue to play out. And, as some carriers pay out claims, they may need to increase premiums across the board to stay operationally viable.

Larger carriers with many product lines are often better positioned to handle this type of disruption. It’s good to review options with your agent during times like these. Having an agent with a broad stable of carriers can help move you out of bad coverage (where the carrier was not prepared for the claim payouts) to better coverage.

Other insurance products may also see rate increases due to low reserves or unexpected losses. Examples include EPLI (Employment Practices Liability), D&O (Directors and Officers), Cyber Liability (data breaches), Long Term Life, Annuity – as well as Disability, Travel, Worker’s Compensation, General Liability, and certain Surplus Lines Policies.

If we learned anything from the Great Recession, it’s that it’s important to work with financially healthy insurance companies backed by healthy reinsurers. We recommend working with carriers rated A+ to A++.

Spikes in claims.

Typically, insurance and business contingency plans mitigate the financial impact of unplanned events. Examples include natural disasters, power outages, and data breach related incidences. COVID-19 added an additional layer of complexity because of widespread quarantines, childcare and school closure issues, and travel restrictions that disrupted almost every business.

Carriers are likely expecting a spike in claims from attorneys practicing in areas outside their expertise. This happens when attorneys see a drop in business and start to dabble in other Areas of Practice (AOP) to drive more revenue. Without the expertise in that AOP, it’s easy to fall into unexpected liability. Expect to be questioned at policy renewal to discover if you’ve expanded your practice into new AOPs.

The pandemic instantly flipped the paradigm from “work in office” to “work from home.” This increased data breaches. And it changed long-established lawyer-client operating procedures. Changing the handling of clients, data, dockets and more increases the chance of malpractice claims.

Cyber/Data Breach Policies will de-bundle from Professional Liability Insurance.

Some Professional Liability polices also provide Cyber Liability coverage. But this can cause a few problems which COVID-19 exposed – the rise in cyber claims as businesses went remote. So, we expect to see an increase in de-bundling Professional Liability coverage from Cyber Liability coverage.

COVID-19 forced businesses to scramble and deploy "work from home" policies and procedures without much forethought. Overnight their business and client data became susceptible to outside threats and cybersecurity risks . Malicious actors gained new access to computers, as well as collaboration tools and subscriptions. And many businesses lacked sufficient IT departments to manage these new challenges. 2019 heralded an ominous future.

One carrier reported their average cyber claim rose from $75,000 at the beginning of 2019 to over $350,000 before the end of 2019. This is a problem if your Cyber Liability is bundled with your Professional Liability Insurance.

Suppose you have a $500,000 Professional Liability policy and use it to pay remediation for a cyberattack costing $350,000. This leaves you with only $150,000 in coverage for any future claims to cover exposure from malpractice, frivolous lawsuits, or simple errors that may threaten your business.

Additionally, your Professional Liability renewal rates will almost certainly skyrocket as a result of a Cyber Liability claim on the same policy. In some cases, you may not get renewed with the same carrier. We believe the number of ransomware and cyberattacks will continue to rise during and after the pandemic. More than ever, it's crucial that you look into purchasing a stand-alone Cyber Liability policy to protect your business. Many businesses used to think they were too small to be a target for cybercriminals.  But our article, Exposing the Myth of Cyber Attacks Being a Big Business Issue, makes it clear. Small and medium businesses are the overwhelming victims.

Carriers may leave the market, or non-renew insureds due to losses.

This happens every couple of years with some carriers. We have seen over 30 companies exit the Professional Liability market in the past 20 years due to financial losses. With disruptive events like the pandemic and court rulings that will tap into carriers’ loss reserves, we expect to see:

• Carriers exiting individual states.
• Carriers non-renewing certain areas of practice.
• Carriers leaving the market altogether.

In fact, this started in the first few months of the pandemic.

CAUTION: We are currently seeing Lawyers’ Professional Liability carriers who previously left the market (or left particular states due to poor loss experience in those states) now re-entering the market in those same states. These carriers leave a state due to low performance and leave their insureds scrambling to replace their coverage without a gap. They then re-enter the state when they think it is "safe" to do so.  Minimize your risk by asking your agent: 

• How long have you been placing Lawyers' Professional Liability coverage?
• How long has the carrier you are quoting been in business? 
• Has this carrier ever left and re-entered the market?

You will need to plan for more time and attention when you renew your Professional Liability Insurance.

The shift to work from home impacted everyone. Some adapted quickly. And some are still adapting.

Plan more time for your Professional Liability Insurance renewal. Don’t wait until the last minute. And don’t be surprised if it takes your agent longer than normal to process your renewal. Most importantly, make sure you’re asking the right questions of your agent.

Ask about experience, financial strength of the carriers, premiums, renewal, and extended reporting period coverage. This can be a lot to remember, so we created a checklist to help.

Wrapping up

COVID-19 emersed everyone into uncharted waters. Of all years, this is the time to give more attention to your Professional Liability Insurance.

Here are a few things you can do to minimize disruption in cost or access of your Professional Liability Insurance:

1. Before entering a new Area of Practice, find out if that area is considered high risk. If you aren’t sure, call us and we’ll help guide you through that decision.
2. Make sure your Cyber Liability and Professional Liability Insurance are in separate plans.
3. Check the longevity and financial rating of your current carrier. If there’s risk, then it’s better to change carriers and be proactive rather than reactive.
4.  Start your renewal process earlier to allow for setbacks.

Download our Professional Liability purchasing checklist to help you through this process.