Having the right amount of coverage is important, maybe the most important factor, in your insurance program. While there are detailed processes (here) we suggest to figure out what limit you need, here are four signs that you have too little malpractice coverage:
1) “Same limit as ten years ago” – Times have changed – deals are bigger and clients are more inclined today than before to sue their lawyers when the outcome is less than expected. Lawyers are under tremendous pressure to do more and more legal work in less time – pressured by clients and pressured by their desire to keep hitting high financial goals.
2) “You haven’t reviewed higher quotes in years” – All methods of selecting your limits use a financial benefit cost analysis, ie weighing the premium cost against the risk. Excess coverage premiums are half of what they were 10 years ago. This lower cost makes old analysis obsolete. The new analysis needs to be done with your broker with the new premiums in mind.
3) “Misunderstanding your limit” – Many firms have an historic affinity for coverage that has defense costs separate or in addition to their limits. While this is a nice feature to have, the reality is that insurance companies sometimes charge significant premiums far in excess to risk of your benefiting from this extra coverage. The tradeoff, in premium, by eliminating this feature can usually free up enough premium dollars to purchase significantly more coverage. In 99% of the claim cases, the actual higher limit and not the limit feature will best protect the firm in times of need. Insurance companies today do not spend a significant amount of money defending claims and are more likely to quickly assess and settle the matters. Exceptions where defense costs can be significant, are complex commercial litigation, IP litigation, and securities work.
4) “You don’t know what coverage your peers have” – Since many professional liability claims include multi-party defendant firms, for example multi-party litigations, it is important that you have similar coverage amounts to avoid not having enough coverage for global settlements. It is also important to know what your peers have so that you don’t buy too much insurance – wasting money and making yourself a “deep pocket” target.
Doing the extra analysis with your broker when you purchase insurance can ensure having the right amount of coverage. Don’t wait until you have a claim to find out. Take the first steps to fix the problem here.