The ABA estimates that 4 in 5 attorneys will have to deal with a malpractice claim against them. No attorney in Wisconsin wants to face a malpractice claim, but if you practice law long enough, chances are someone will file a claim against you. Legal malpractice insurance exists to protect attorneys and their practices in the event of such a claim, but as the American Bar Association notes, the number and value of malpractice claims have soared in recent years. That likely means higher premiums for lawyers, putting them in a financial squeeze.
Given the increased numbers and costs of legal malpractice claims, attorneys should do what they can to reduce their premiums or, at minimum, slow the rate at which their premiums increase.
What Influences Lawyer Malpractice Insurance Cost?
Factors like area of practice, location, firm size, and other areas will affect your insurance premium. Consider the following factors considered by insurers.
What Areas of Practice are Considered High-Risk?
The specific legal fields in which a firm practices significantly affect insurance rates. Certain practice areas, such as intellectual property, class actions, securities, real estate, corporate tax, entertainment, and civil litigation-plaintiff, often see larger numbers of (and more costly) claims.
This typically results in higher premiums for lawyers in those fields. Conversely, defense firms generally face lower risks of lawyer malpractice suits, though they still face the risk of things like disciplinary complaints.
How do Insurers Determine Premium Rate Factors by Areas of Practice?
Insurers will make premium rates for legal malpractice insurance based on a data-led process. This data is continuously collected and based on historical data and is analyzed in two areas, frequency and severity of losses.
- Frequency: The number of claims an insurer expects to receive and be reported to them. They consider a frequency rate calculated by the number of claims per a fixed number of lawyers or firms they insure in a year.
- Severity: Average size of a claim or loss on each specific practice area. Severity is an average calculated by two factors, expected defense costs and the damages that are paid after the claim is settled.
These two areas are then combined and used to create a relativity modifier that sets rules when setting premiums based on each practice area. High-frequency and low-severity areas of practice will expect to pay less for attorney malpractice insurance than a low-frequency and high-severity area of practice. The chances you will be eventually hit with a legal malpractice suit are high regardless of practice area.
Other Factors that Affect the Cost of Legal Malpractice Insurance
- Location: Geographic location plays a role, as the cost of services and the risk of claims can vary significantly from one region to another. For example, firms in metropolitan areas, where insurers often charge higher fees, may face more claims and, thus, higher premiums than those in rural areas.
- Firm Size: The number of attorneys in a firm impacts the insurance rates. Unlike other professions where annual revenue might determine premiums, law firms are often assessed based on the number of practicing attorneys and the caseload each handles.
- Years in Practice: The length of time a firm or attorney has been practicing can influence insurance costs, with new attorneys or firms often eligible for reduced rates in their initial years of practice.
- Prior Claims: The history of past and pending claims can significantly affect not just the cost of the policy but also eligibility for coverage. Firms with recent claims may face higher premiums or may need to seek coverage through non-standard carriers.
- Desired Coverage Limits: The level of coverage a firm desires also influences the cost. Higher coverage limits typically result in higher premiums, although this can be mitigated to some extent by choosing higher deductibles.
- Risk Management Discounts: Insurers may offer discounts for firms that demonstrate effective risk management practices, such as using engagement letters, docket control, conflict of interest avoidance, and participation in continuing legal education courses. Firms that have been claim-free for a set period may also qualify for discounts.
Struggling with Rising Legal Malpractice Premiums? WILMIC Can Help
Since 1986, the Wisconsin Lawyers Mutual Insurance Company (WILMIC) has worked to address the high costs and limited availability of malpractice insurance for attorneys in this state. Our primary focus is smaller firms with six or fewer attorneys, providing them with the resources they need to operate without fear of financial ruin in case of a lawyer malpractice claim. More than 90 percent of our policyholders stick with us for life, demonstrating our value to our customers. Call us today to learn more.