At the November 2011 Prof­essional Liability UnderwritingSociety Conference inSan Diego, the message was that in 2012,underwriters would start taking rate increases. Sure enough, theywere true to their word and we saw rate increases from long-termLPL carriers take rate increases on average from 5 percent to 10percent. After 8 years of decreasing premiums and expanded coverageterms, this was a change firms were not used to and one thatcontinues in 2013. We're in a firming insurance market, which meanspremium increases and in some cases, restricted terms anddecreasing limits. On the other hand, from the newer entrants inthe marketplace, with immature books of claims, we haven't seen therate increases we've seen from long- term writers of LPLinsurance.

But we're not in a “hard” market. In years past, this impliedcarriers pulling out of the professional liability marketplace.With the number of carriers writing LPL insurance, and plenty ofcapacity, it's hard to believe we would ever see a hard market inthe near future.

The market is firming because insurance carriers can only writea multiple of their capital/surplus base. As their capital grows,prices drop, coverage and limits are easily attainable andunderwriting standards loosen a soft market. As capital shrinks andclaims are paid out faster than premiums come in, prices increase,coverage becomes scarce, and underwriting standards tighten to afirming or hard market.

So why is LPL loss experience increasing? It's being driven byboth indemnity and defense. The financial crisis has had atrickle-down effect to the lawyers. Transactional claims and realestate claims have been on the rise. As deals have gone bad,clients blame their lawyers and other professionals. The complexityof matters has increased and it's taken longer to resolve claims inthe courts. It's not just the damages, but the cost of defensethat's increased, as e-discovery, the cost of experts, and overallexpenses have driven the total incurred cost of claims to anunprofitable level.

What has a firming market meant for LPL insurance in 2013?Premiums have risen as carriers have taken across-the-board rateincreases for their entire books of business. Average rateincreases have been in the 5 percent to 10 percent range and, insome cases, double-digit increases. Underwriting has tightened,which means more declinations as underwriters become more selectiveon the firms they wish to add to their portfolios.

Related: Read “Survey: Legal Malpractice Claims Spiking Due toRecession“

More surplus lines paper is offered and more surplus linescarriers are quoting for pricing flexibility, as confidence in theability to determine profitable rates seems to be slipping. There'san increased interest in writing excess layers, as more carriersare tentatively entering the marketplace on an excess basis,unwilling to sit at riskier primary levels.

As carriers seek to control defense costs, choice of defensecounsel on policies to defend claims has been more tightlycontrolled. Firms with mutual choice of counsel on their policieshave been asked to agree to their requested counsel at theinception of the policy, rather than have the discussion whenclaims are made, allowing carriers the time to pre-negotiatedefense cost rates.

In spite of all of the above, there is still competition for“new” business. Growth is still a priority for many carriers whostill compete for low to average risk and claim-free firms.

At the same time law firms also have struggled forprofitability. General counsels have become more demanding and costconscious of the firms they hire, while increasing their in-houseprofessionals and staff. Organic growth has slowed and mergers andacquisitions are on the rise. Major large firms have declaredbankruptcy, followed by litigation from trustees and creditors.

For brokers who want to increase their law firm books ofbusiness, the good news is that in all this uncertainty and changein the market, law firms have a greater need than ever for anexperienced law firm broker. Just as we advise our law firm clientsto not dabble in unfamiliar areas of practice, it's not wise foragents or brokers to dabble in this line of coverage. Lawyers areprofessionals who will recognize a broker who doesn't have theknowledge and relationships with markets, or an understanding ofthe challenges their firm faces.

Related: Read “Back to Basics with LPL“

A law firm broker needs to understand the marketplace,application questions, underwriting needs, coverage, riskmanagement and the challenges law firms face in managing theirpractices.

LPL is a fluid marketplace. Understand the underwritingphilosophy of the various carriers quoting LPL coverage. We keep aspreadsheet of the more than 40 carriers quoting LPL. Many carrierssegment their distribution strategy by size of firm; appointingMGAs or MGUs for small firms and open brokerage for larger firms.Others will only quote firms over a minimum size. Still others willnot quote firms over a certain size.

Carriers also are selective as to the areas of practice theywill write. Some will not write firms that practice plaintiff classaction work or patent prosecution work. Carrier capacity and thestates they write in also is important. Research how each carrierwrites firms based on size of firm, area of practice, maximumlimits, states they won't write in, primary and/or excess, andadmitted or non-admitted paper. On top of that, carrier financialratings, history of writing LPL and LPL experience of the carriermanagement team is valuable information.

The completion of the LPL application is a time-consumingprocess for your law firm client and the broker, who needs to makea careful review of that application before releasing it tounderwriters. Law firms don't always understand the importance ofthe disclosure of information on the application and the need foraccuracy to prevent rescission of coverage from materialmisrepresentation. Explaining why a question on an application isimportant to underwriters can aid your law firm client in answeringquestions accurately.

Related: Read “Find and Crack New Markets“

If you've never been in the underwriting role, ask anunderwriter to explain the information they use in rating a policy.Only by knowing what's important to underwriting will you be ableto explain to a client why a premium increases or decreases. Thelocation of the firm, number of attorneys, areas of practice,administrative policies and procedures and loss experience are thebasics. Subjective factors leading to rate debits and credits cancome into play as well, so counseling your law firm client toexpand upon their strengths and quality of firm management is goodadvice.

Policy forms vary by carrier and the nuances can get you introuble. Don't count on your law firm client to have read thepolicy form. It's imperative that you point out any materialdifferences in forms and where they might have gaps in coverage orwhen changing carriers will make a material difference in thecoverage. A comparison between the coverage and exposure on acomplete new business application should reveal what coverageprovisions are necessary. For example, if a firm has aninternational practice, you would want to ensure the policy formhas coverage for claims brought outside the U.S. Knowing whatendorsements are commonly used to expand coverage is a part ofbeing an experienced LPL broker.

LPL risk management means understanding the cause of LPL claimsand steps firms can take to prevent or reduce administrative,substantive, client relations, and intentional wrongs. Again, aclose review of the LPL application is a good starting point for arisk management assessment of the firm, but underwriters can onlygo so far in evaluating a firm. Other areas of concern inpreventing claims are client intake processes, firm communicationand culture of risk management, conflict of interest resolutionprocedures, compensation and overall management structure.Advisement on these subjects and other developing issues affectinglaw firms is even more critical now that the economy has causedsuch a spike in claims against lawyers.

Finally, keeping up with changes within the law firm servicesindustry will show your clients that they have a broker who caresabout their overall financial health as much as the placement oftheir coverage. Law firms are struggling with a flat demand forlegal services from their corporate clients, a world of unbundledlegal services and a regulatory maze that is affecting both themand their clients. A knowledgeable broker will stay abreast of thestate of the industry.