Understanding Legal Malpractice Insurance Step Rating
If your law firm recently purchased legal malpractice insurance or is preparing for its first renewal, you may notice that your premium increases even when you have no claims. Certain attorneys find this confusing, especially when their practice has remained unchanged. In most cases, the increase is the result of step rating, a standard feature of legal malpractice insurance claims-made policies.
Understanding how step rating works can help law firms budget effectively and avoid surprises during renewal season.
What Is Step Rating in Legal Malpractice Insurance?
Step rating is the process by which premiums increase during the early years of a legal malpractice insurance policy written on a claims-made basis. Although the policy lacks a step rating definition, it is a major factor contributing to premium increases during the initial years of ongoing coverage.
Legal malpractice insurance uses a claims-made policy form, meaning the current inforce policy provides coverage for reported claims.
Because of this structure, the insurer’s exposure grows over time. As a result, premiums increase incrementally through a series of rating “steps” until the policy reaches its mature or fully rated level.
Why Are First-Year Premiums Lower?
When a law firm purchases its first claims-made legal malpractice policy, the policy covers only acts that occur after the policy’s inception date. There is no coverage for prior acts under the new policy, which significantly limits the insurer’s exposure during the first policy year.
With limited claims exposure for performed work during that first year, insurers charge a lower premium. Malpractice claims are rarely made and reported in the same year as the legal work.
The result is a more affordable first-year premium for attorneys and law firms establishing new coverage.
How Step Rating Increases Premiums
Each year that a claims-made policy renews, the insurer assumes responsibility for a broader range of prior acts. The policy begins covering an increasingly longer history of legal work, creating greater exposure to potential claims.
As coverage expands, the premium increases accordingly. This gradual increase is known as step rating.
A common rule of thumb is that a legal malpractice policy’s premium may approximately double over the first three to five years compared to the original first-year premium. These increases occur even when the law firm has:
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- No malpractice claims
- No disciplinary issues
- No significant changes in practice areas
- Stable attorney headcount
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This premium progression reflects increased exposure, not increased risk from the insured firm.
Does Step Rating Restart When You Change Insurance Carriers?
One of the most common misconceptions among attorneys is that changing insurance companies restarts the step-rating process.
Fortunately, that is not the case.
As long as the law firm maintains continuous claims-made coverage and preserves its established prior acts date, step rating continues uninterrupted, even if the firm moves to a different insurance carrier.
The prior acts date serves as the foundation for determining how far back the current insurer will provide coverage. Maintaining that date is essential when transitioning between insurers.
When Does a Policy Become Fully Rated?
Step rating does not continue indefinitely. Most legal malpractice policies become fully rated after five to seven years of continuous claims-made coverage.
Once a policy reaches full maturity, underwriting factors determine premium changes rather than step-rating adjustments. These factors may include:
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- The firm’s claims history
- Changes in practice areas
- Growth or reduction in attorney count
- Market and insurance industry conditions
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At that stage, the policy has reached its maximum exposure level, and insurers no longer apply step-rating increases.
Planning for Future Renewals
Law firms should view step-rating increases as a normal part of building long-term claims-made coverage. Understanding that premiums will gradually rise during the beginning years allows firms to budget accurately and avoid confusion at renewal time.
The key takeaway is simple: a premium increase does not necessarily mean your firm has become a higher risk. It simply reflects the natural progression of a claims-made legal malpractice policy as it accumulates additional years of covered exposure.
Step rating is one of the most important concepts for attorneys purchasing legal malpractice insurance. Claims-made policies cover more legal work as coverage continues, leading to higher premiums at first. Once fully rated, premium changes depend on claim history, firm operations, and market trends.
By understanding how legal malpractice insurance step rating works, law firms can make informed decisions about coverage, budgeting, and carrier changes while maintaining the protection their practice needs.
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Lee Norcross, MBA, CPCU
California License # 0D87292
L Squared Insurance Agency, LLC ® DBA in California as L2 L Squared Insurance Agency, License # 0L93416
Managing Director, CEO
Lee@L2Ins.com
616-726-7080
