How Legal Malpractice Insurance is Priced

Explaining the Step Rate methodology used to calculate your premium

A Step Rate credit is issued to you on a declining scale throughout your first six years of coverage. But what exactly is the credit and how does it work? Read below to learn more.

Because of the nature of legal malpractice insurance claims, the underwriting risk for an attorney does not fully mature until there is approximately 6 full years of prior exposure that is insured. Therefore, for your first six years, your premium is less because of this limited exposure. This pricing methodology is called Step Rate credit.

The credit is highest – meaning your premium owed is lowest – during the first year of coverage and is gradually reduced in each subsequent year, as the risk associated with the insurance policy matures. This has the effect of incrementally increasing your premium until the premium is fully mature after six full years of continuous coverage.

See the chart below for a visual representation of the Step Rate methodology.

step-rate

Who does the credit apply to?

The credit applies to any lawyer who purchases coverage for less than 6 full years of prior acts. This could be a new-to-practice attorney or any attorney whose coverage extends backward fewer than six full years. This can also be the case for the lawyer purchasing coverage after a decent lapse or gap in coverage. In many instances, firms may start a new lateral hire without prior acts coverage.

How much will my premium increase each year?

The Step Rate credit decreases each year until maturity, meaning your premium will likely go up. However, your premium increase may vary based on other underwriting factors such as your claim experience, a change in the limits and deductible purchased, or a change in the overall base rate.

What is a Retro Date and how does it correlate to the Step Rate credit?

Attorneys will have a Retroactive or “Prior Acts Date” associated with their coverage. A Retro Date is a date stated in the Policy that limits coverage to acts or omissions occurring on or after the stated date.

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