Practical Steps to Potentially Reduce Professional Liability Insurance Premiums
Obtaining malpractice insurance can be challenging. Understanding what makes your firm more attractive to insurers can be the key to getting the best premium to fit your practice.
Stephen Dimiceli is an agent who is well-versed in attorney malpractice insurance. He sat down for an interview and talked through how attorneys can make carriers more comfortable insuring their firm.
Stephen tackles the following questions in this blog:
- Why Is It Important to Fully Disclose Areas of Practice (AOPs) and Prior Claims on Your Professional Liability Insurance Application?
- How Does Practice Management Software Make a Firm More Attractive to Carriers?
- How Can Attorneys Use Their Calendaring Process to Reduce Claims?
- What Documentation and Onboarding Procedures Do Carriers Prefer?
- How Much Can Attorneys Reduce Their Premiums?
Why Is It Important to Fully Disclose Areas of Practice (AOPs) and Prior Claims on Your Professional Liability Insurance Application?
Disclose as much detail as possible on your initial application. This detail will provide the basis for a more favorable outcome.
Complete the AOP grid portion of your application based upon either billable dollars or time spent (different applications ask this question differently). New firms may have to project what they intend their practice is going to look like over the next year. I encourage them to do their best when completing the AOP portion of the application. Complete the application based upon your anticipated AOPs, with the understanding that you may get a case that is outside of your projection. The good news is your policy will usually still cover cases that fall outside what you projected on the AOP grid of your application. The exception would be AOPs that are clearly and explicitly excluded under the policy. You should receive a specimen policy along with your quote so that you can review these exceptions and any other exclusions that may be on the policy.
Generally speaking, you’re not going to get locked into only being covered for the AOPs that you enter on the application. When it is time for your policy to renew, you will be asked to review any changes to your practice from what you originally indicated on your application. Any changes will be considered in the underwriting of your renewal.
In addition, carriers are also going to want to know your claim history. The underwriters know and understand that many firms have had claims activity in the past. They also know that many claims are frivolous. It is best to provide a detailed account of the matter and to show it in the best possible light if you can. You will be asked to include indemnity and defense amounts and the outcome of the claim, or the status of the matter if it is still pending. You may also be asked to provide “loss runs” for any past matters. These are documents issued by the carrier that covered the claim and provide details that the underwriters will need to review prior to offering you terms.
The longer you’ve had a clean claim history, the easier it will be to get underwritten by the carrier.
Bottom line, the more detail you can put into your application regarding your AOPs and prior claims the better your chances that the carrier will have the adequate information necessary to underwrite, and ultimately insure your firm.
How Does Practice Management Software Make a Firm More Attractive to Carriers?
Practice management software is uniquely designed for law firms. All carriers prefer that your docket control and conflict of interest process be computerized.
Smaller firms may question the return on investment. However, from a risk management perspective, having computerized docket control, conflict-of-interest crosschecking, and calendaring systems will set you apart from the crowd and make you more attractive to underwrite.
Docket control software comes into play with AOPs in which court appearances may be necessary such as personal injury. If you miss a filing deadline or you enter the wrong dates, you could very easily incur a claim from a client whose case may have been inadvertently barred by a missed statute. The docket control portion of a good practice management software system will help you stay on top of all case matters and avoid potential claims. Docket control software can save you time and headaches, plus its use is attractive to insurance carriers.
Conflict-of-interest systems are also a key practice management tool. When you have multiple attorneys in a firm you don't want to onboard a client who may have previously been an opposing party to another partner's client. This type of software can crosscheck through your system to help ensure no form of conflict can arise. Even smaller firms benefit from conflict-of-interest software. It is often difficult to remember a client you may have represented in the past that may be in conflict with a potential new client.
If you aren’t currently using practice management software, you should consider doing so to protect yourself from potential malpractice claims.
We’re human. We make mistakes. It happens.
In addition to making your firm more attractive to underwriters, you can save yourself time and money in the long run by having computerized systems.
How Can Attorneys Use Their Calendaring Process to Reduce Claims?
Carriers like to see dual calendaring solutions as they can reduce the risk of missing a deadline. Many malpractice claims are caused by simple calendar errors (like missed deadlines). Calling it a “system” makes it sound pretty complex, but the system can be any combination of calendars on your laptop, desktop, cell phone, paper calendars, wall calendars, desk calendars, diaries, etc., as long as there is a cross-checking process in place.
If a calendar entry is missed on one of the calendars, chances are it’ll be picked up by one of the others. It takes some discipline and consistency, but carriers like to see weekly cross-checking of the calendar systems and at least two people maintaining the system. When managed well, a dual calendaring system reduces the chance of your firm generating a claim because of a missed deadline.
What Documentation and Onboarding Procedures Do Carriers Prefer?
Clear engagement and scope of services letters signed by the client are a great way to avoid misunderstandings in your relationship with a client. Clearly define the attorney-client relationship:
- What are the associated fees?
- What are the firm's duties and scope of services?
Also, be sure to send non-engagement and disengagement letters, as well as confirm resolutions of matters in writing. You’ll save yourself a lot of headaches down the line.
Manage client expectations and maintain regular client communication. Make and preserve paper (or electronic) trails with respect to all client communication, including phone calls.
Focus on client satisfaction to ensure you're getting paid on time. If the client isn't paying you, it could either be that they can't pay or they're just not happy with your service. The more you can avoid these kinds of problems the less risky you’ll appear to a carrier.
How Much Can Attorneys Reduce Their Premiums?
As you continue to renew your policy, the exposure to the carrier increases due to the number of years of past coverage they are providing. In your first seven or eight years of coverage you can expect your premium to increase as the years of exposure increase. After this initial period of nominal increases in premium, you will have reached “mature prior acts” status. If you have continually renewed your coverage without a gap, your premium should level off barring increases for other underwriting reasons. This is how all claims-made policies are rated.
Wrapping Up
Implement a conflict-of-interest system. Consistently use engagement and disengagement letters. Build a strong client communication process. These things can also help lower your premium.
If there’s a hiccup in your past, then it’s possible the carrier may have added a surcharge to your premium. Usually this only happens if the claim payout for either defense and/or indemnity is above a pre-determined threshold. Not all claims are surcharged. As the matter(s) age this surcharge gradually decreases.
There are many factors that contribute to making a firm more or less attractive to insurance carriers. The good news is you can control a lot of them.
Implementing good client onboarding communication, docket control software, and dual calendars will help show that your firm is proactively avoiding risks. But, beyond making your insurer comfortable, you’ll save yourself time and money by bringing your firm up to date with industry-standard risk management practices.
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