Price Hikes Begin To Taper Off For Lawyers
Brokers expect hard-to-place attorneys to find respite this year in moderating market
Prices for lawyers professional liability insurance and “hard-to-place” attorneys’ coverage are no longer skyrocketing, according to industry participants who say they expect single-digit rate hikes at most this year.
“There appears to be less of an increase this year than what law firms have experienced over the past 24 months,” said Anne Marie Davine, senior vice president and the national law firm practice leader at Marsh, the brokerage unit of Marsh & McLennan Companies.
She said prices for lawyers liability insurance have been going up across the board in recent years because the marketplace as a whole has been performing very poorly as a result of underpricing and claims experience, but she is now modestly optimistic about this year’s prospects.
The prospect of flattening rates in 2005 for legal malpractice insurance should come as especially welcome news for hard-to-place lawyersthose involved in high-risk areas of law or that have a history of severe or frequent claims. For those in this category, professional liability insurance can now cost up to $10,000 per lawyer following more than two years of hard market price increases, experts said.
A number of industry participantsincluding executives from Arthur J. Gallagher, U.S.I. Holdings Corp. and wholesale broker Burns & Wilcox Ltd.also told National Underwriter they see prices hitting a plateau this year for lawyers liability.
“For the past two years, we’ve definitely been in the hard market, but there is some stabilizing, said Elizabeth Sutter, vice president of U.S.I. Holdings in Briarcliff Manor, N.Y. We are not seeing the significant increases weve had in the past 24 months. But we are not seeing decreases either. So this is more of a flattening out of significant rate increases.”
Ms. Sutter observed that over the last couple of years, even the standard, non-high-risk attorneys saw their rates soar at least 50 percent. Now, standard attorneys pay on average some $3,500 for their liability coveragewhile hard-to-place lawyers fork over up to ten grand each for their insurance.
Furthermore, Ms. Sutter said she has been seeing a pattern of reductions in limits of liability, coupled with rising deductibles.
Jody Harris, managing director for Itasca, Ill.-based broker Arthur J. Gallagher’s lawyers professional solutions, agreed that pricing is finally flattening out. She forecast that if there are any rate increases at all in this line, they will be in the 5-to-10 percent range this year.
Despite the forecast of stabilizing prices, law firms and attorneys that are deemed hard to place still face considerable challenges in finding affordable liability insurance. Experts say this is where knowledgeable brokers or agents can come in and make positive difference for their clients.
Explaining the dangers lawyers face in their profession, an executive from Darwin Professional Underwriters, a specialty-lines unit of New York-based Alleghany Corp. focusing on hard-to-place lawyers coverage, said these professionals can run into costly legal troubles from a variety of sources. Darwin Professional’s Chief Underwriting Officer David Newman explained that lawyers can be sued by their grumpy clients as well as third-party non-clients in some cases.
If third parties can show that the law firm or the lawyer in question knew that they were going to rely on the work the lawyer was performing, they may be able to assert a claim against the lawyer even if they werent the lawyer’s clients.
From an underwriters’ perspective, there are two factors that determine whether a certain lawyer or law firm is hard-to-place, experts in this segment said. One factor is costly loss experiencea firm may have had a severe, six-to-seven figure claim, or frequent claims of at least three or four losses costing five-to-six figures each over a few years. These unusual loss patterns may be caused by a variety of reasons, including poor business management.
The other factor focuses solely on areas of practice where either the individual attorney or the law firm deals in what’s perceived by underwriters as “high-hazard” areas because of their collective claims history or ongoing risk exposures.
Lawyers falling in this category would include plaintiffs bodily-injury lawyers, lawyers involved in intellectual property work, patents, securities law, class actions, entertainment law with high-value clients, as well as those 100 percent involved in real estate operations.
Jonathan Brown, international director of the special risk division for Burns & Wilcox Ltd. in Farmington Hills, Mich., also noted that lawyers in certain jurisdictions such as Alabama, Texas and California may find themselves as hard to place. On the other hand, he said, jurisdictions which have passed meaningful tort reform may be getting more attractive.
Currently in the lawyers liability marketplace, there are four captives playing active roles, the largest one of which is called Attorneys Liability Assurance Society, based in Chicago. There are the commercial insurers that provide additional capacity, and the biggest players for hard-to-place lawyers include Lloyd’s of London, Darwin Professional and Evanston, brokers said.
There are also a group of insurers serving smaller hard-to-place law firms, with up to 20 attorneys and $2 million in limits, according to Ms. Harris from Arthur J. Gallagher. These carriers include the New York-based Gotham Insurance Company and James River Insurance Company and Colony in Richmond, Va.
To successfully navigate through coverage options among insurance providers and to find the best, affordable products for hard-to-place lawyers, industry executives offered some simple advice for insurance agents and brokers: Know thy client.
Anna Marie Haught, who heads up lawyers professional liability underwriting at Darwin Professional, said the most important thing agents and brokers should do is understand what has happened to their hard-to-place clients.
“If you’ve got lawyers who had some claims, they need to make sure the information they give out is clear and consistent. And they should explain exactly what’s happened and what’s going on. Specifically, what the law firm has done to rectify its practices and procedures after claims,” Ms. Haught said.
Marsh’s Ms. Davine said that agents should pay very close attention to how a claim is handled at client firms. She also recommended that agents and brokers should take care not to assume that a policy for legal malpractice insurance offered by different insurers have the exact same breadth of cover. She advised that agents need to pay attention to how the language is articulated in exclusion sections and examine certain thresholds in different policies that would trigger exclusion for cover.
Mark Henderson, product manager for lawyers errors and omissions at Shand Morahan, part of Markel Corp. in Glen Allen, Va., advised agents to get to know how to better access hard-to-place markets, explaining that the way they can achieve that is by working with their local wholesale brokers active in the lawyers E&O line.
Art: Lawyer in hard hat
Flag: Risky Lawyers
Head: Who Is Hard To Place?
Some lawyers are greater risks in the eyes of insurers writing professional liability coverage. These hard-to-place lawyers either:
Had a severe, six-to-seven figure claim.
Have had frequent claimsthree or four, costing five-to-six figures each.
Work in high-hazard areassuch as bodily injury, intellectual property work, patents, securities law, class actions, entertainment law with high-value clients, or real estate.
Work in high-hazard jurisdictions, such as Alabama, Texas or California.
Flag: Prices Stabilize
Head: Hard-To-Place Lawyers Get A Break
Industry executives say they are seeing stabilization in lawyers liability insurance prices, which had been soaring across the board. Indeed, in the past couple of years:
Most attorneys saw rates soar at least 50 percent.
Hard-to-place lawyers saw their average liability coverage premiums go up to as much as $10,000 each.
Standard attorneys saw their average premiums go up to around $3,500 for their liability coverage.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, February 11, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.