The “Step Rate” Increase

Lawyers buying malpractice insurance for the first time are surprised when their premium goes up year over year when nothing seems to change. This increase is on account of a standard insurance industry practice known as a Step Rate.

What is a Step-Rate increase?

The first year your firm has a professional liability policy, your coverage only includes the current year of legal work. As a result, the underwriter actually provides a discount. After the first year renewal, your premium will increase as the policy covers an additional year of legal work. The increase is a result of the underwriter gradually reducing the discount.

How long does Step-Rating last?

Step rating typically ends in 5-7 years depending on various factors, including the state in which you are located. You cannot avoid the impact of step rating by switching carriers as almost all carriers use step rating.

What else is making my rates change?

Changes in limits, deductible, areas of practice, number of attorneys, claims, changes in firm procedures as well as a carrier’s change in underwriting guidelines could impact your premium.

The Times They Are a Changing

Lyrics from the Bob Dylan song:

“Come gather ‘round people, wherever you roam, and admit that the waters around you have grown, and accept it that soon you’ll be drenched to the bone, if your time to you is worth savin’, and you better start swimmin’, or you’ll sink like a stone, for the times they are a-changin’”

Yes, 2021 is ushering in a number of changes for all of us. If your practice is changing, here is a list of high risk areas of practice that may impact your malpractice insurance coverage.

  • Cannabis Representation – Nationwide the insurance and financial industries have not been able to reconcile an industry that is illegal at the federal level and legal in many states. As a result, pricing is high, if available, even for lawyers who are just giving advice to these businesses.
  • Plaintiff Class Action and Mass Tort work and to a lesser extent defense work in this area. Almost universally class action and mass tort are viewed as a high risk. Many underwriters will not write a firm doing this work.
  • Medical Malpractice Plaintiff Work – Traditionally, a high claim area of practice.
  • Collection Work
  • High Volume Estate Work – Claim statistics are showing an increase in severity in this area of the law.
  • High Value Family Law – Claim statistics are showing an increase in severity.
  • IP Work – Viewed as extremely high risk. Many underwriters will not provide terms for a firm doing this type of work.
  • Securities Work – High severity.

We are not suggesting that you not take on these representations for your clients, however, you should be aware that adding these areas of practice to the work performed at your firm will likely have an impact on your malpractice insurance costs.

If there are any questions, please contact your Kaestner & Berry representation for assistance.

At Kaestner & Berry we are independent agents who specialize in helping law firms meet the challenges of a changing world.