My agent stated that the premium increase was because of “step rating.”
Lawyers Professional Liability policies are Claims-Made Policies. Legal Malpractice Insurance Claims-Made Policies are Step Rated. Your initial lawyers policy is written without prior acts coverage. Expect that in years 5 to 7 that your policy premium will double because of step rating. The premium increases for your Lawyers Professional Liability policy in years 2 through 5 will see the major portion of the rate increase. Somewhere between the 5th to 7th years your policy will become “Fully Rated”. Once the policy becomes fully rated, then the only premium changes that should occur are because of claims history; the insurance carrier changing rates; changes in the areas of practice; and/or changes in the general insurance environment.
If you switch Lawyers Professional Liability insurance carriers, will step rating start all over again with the new insurance carrier?
The short answer is “No.” Malpractice insurance agents ask to see the Lawyers Professional Liability Insurance declarations page and any prior acts endorsements making sure the quote matches the current prior acts date. The new insurer assumes the exposure for past acts and looks to the prior acts date for any claims reported, even if the current insurer was not on the risk at the time the alleged error occurred. The prior insurer once coverage expires has no exposure for reported claims.
Why is there Step Rating?
At the beginning of the 1st Lawyers Professional Liability insurance policy there is no coverage for past acts. Only acts committed after the prior acts date (the inception date of your first Claims-Made policy that has been continuously renewed) have coverage. An error by an attorney may have occurred in the 1st policy year but is not known. It takes a time for discovery of errors. Depending on the services performed the allegations of an error made can range from just days after the services performed to years later. As the lawyer’s body of work performed under the Lawyers Professional Liability Policy grows, so does the exposure.
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Lee Norcross, MBA, CPCU
Managing Director, CEO
(616) 940-1101 Ext. 7080