Step Rating Caused My Attorney Malpractice Insurance Premium to Increase
So what is Step Rating? A Step Rating definition is not found or mentioned in attorney malpractice policies (LPL).
LPL policies are written using a claims-made policy form. A claims-made policy is likely Step Rated. At the inception of a firm’s 1st claims-made policy there is no past-acts coverage. If each year the firm continued to renew a claims-made policy without prior acts coverage, claims made for acts that happened prior to the current policy coverage effective date would have no coverage for that claim. Not a desirable or logical insurance policy. An occurrence policy solves this issue, but no United States insurer writes an LPL policy on an occurrence policy form.
To resolve this issue a prior-acts or retroactive reporting date is established. This prior-acts date equals the policy inception date of your 1st continuous claims-made policy. This clams-made policy endorsement provides needed prior-acts claims reporting coverage for acts outside the current policy term.
During the first claims-made coverage years the exposure increases as each subsequent claims-made policy covers more past-act years. The premiums increase commensurate with the exposure. This process is commonly called Step Rating. During the 1st 5 to 7 years a good rule of thumb is that the premium will double from the 1st year’s premium. This is true for any LPL policy with any malpractice insurer. Somewhere between year 5 and 7 the policy becomes fully rated. The assumption is after 5 to 7 years there is little to no additional exposure increase.
Once the firm becomes fully rated, the premium changes because of claims history of the individual firm or the insurer; changes in the practice areas; and/or changes in the general insurance environment.
One good note as long as you maintain your prior acts date, even switching insurers does not restart Step Rating.
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Lee Norcross, MBA, CPCU
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L Squared Insurance Agency, LLC ® DBA in California as L2 L Squared Insurance Agency, License # 0L93416
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Lee@L2Ins.com
616-726-7080
