Insured asks:
What is ‘Step Rating’? I did not find term defined or mentioned in my policy.
Response:
Attorney Malpractice Insurance policies are written ‘claims made’ policy form. Most Claims Made Policies are Step Rated. At policy inception of a law firm's 1st ‘claims made’ Attorney Malpractice Insurance policy there are no past acts to cover. With only the inception year’s exposure, premiums are relatively inexpensive. Although possible, not many claims are made during the inception year of an attorney malpractice policy.
During the first few years of ‘claims made’ coverage the exposure increases as each continuously renewed “claims made” policy covers more years of past acts. The rates increase to match the exposure over those first few years. A term used to describe this process is commonly called ‘Step Rating’. A good rule of thumb is that over the 1st 3 to 5 years the premium will double from the 1st year's premium. This is true for any Attorney Malpractice Insurance Policy with any insurer. Generally the policy will become ‘fully rated’ in 5 to 7 years.
Once the firm's policy becomes ‘Fully Rated’, the only changes in premium should be because of the firm’s claims history; changes in the firm’s areas of practice; number of attorneys; and/or changes in the general insurance environment.
Good news is that as long as you continuously maintain your claims made coverage even if you switch insurers, the ‘Step Rating’ does not start over.