Step Rating is not defined in an attorney malpractice policy. But at inception of your 1st policy, it is the major reason that your premium will increase and continue to go up for the first few years.
Attorney Malpractice Insurance policies are written ‘claims-made’ policy form. Most claims-made policies are Step Rated. Remember each claims-made policy only covers claims made and reported during that policy year. At policy inception of a law firm's 1st ‘claims made’ attorney malpractice insurance policy there is no coverage for past acts. Given this, with only the inception year’s exposure, malpractice insurance 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 and happens even if you switch insurers. Step rating stops once the policy is ‘Fully Rated’. 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 you maintain your claims-made coverage even if you switch insurers, the step rating does not start over.
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Lee Norcross, MBA, CPCU
Managing Director, CEO
(616) 940-1101 Ext. 7080