Law Practice Management Newsletter

January
Image for Welsh

How to manage your malpractice insurance costs

by Terry Welsh, president, Massachusetts Bar Association Insurance Agency

When looking at ways to manage your malpractice premiums, firms should consider ways to understand both the financial exposure to loss that they face and balance that with the premium that needs to be paid. The goal of the insurance policy is to transfer the financial risk, excluding the deductible selected, to the insurance company. So, what are some ways to help firms manage their premium costs? Here are some simple but effective steps that can guide you to manageable insurance premiums:

  1. What is your deductible? The higher the deductible, the lower the premium. Think about what you can reasonably afford to pay out of pocket if an allegation is made against you.
  2. What are your internal controls? Insurance companies want to see that you are helping minimize your risk by attending CLE's in your areas of practice. They also want to see that you have an effective two types of docket system that are cross-checked regularly against each other. Both of these risk management tools will have a positive effect on your premium. Historically, 25 percent of all claims occur because someone failed to do something on a timely basis. Clearly that type of loss is preventable.
  3. Should you sue your client for your fee? Again, historical data says that in nearly 100 percent of the cases where a firm sues for fees, they get a malpractice claim right back at them. Keep your retainers up to an appropriate level, stay on top of your billings and communicate with your client on a regular basis. These simple steps help you stay engaged with your client and helps them to understand how their case is progressing. Being sued for a fee can increase your premium so balance the amount you are owed against your deductible and weigh that against the impact to your practice.
  4. Do you send your client an engagement letter and when you decline to take a case do you send a disengagement letter? Suits from both of these will cost you your deductible and can increase your premiums. Setting expectations in an engagement letter help reduce claims. Disengaging properly helps to also limit your exposure to suits where a potential client "thinks" that you are their lawyer.
  5. Are your areas of practice reflected properly in application? There are areas of practice that generate more losses and thus produce higher premiums. Take a few minutes when completing your renewal application and really look at your practice to make sure that if your practice has changed that you reflect those changes in your application.
  6. Do you change insurance companies every few years? The insurance company wants to see stability and changing your company every year or so can cause them to increase the premium due to this perceived instability.

Be timely with the submission of your application, pay the premium when due and then focus on building a law practice that utilizes the premium management strategies above. These few steps will help you minimize your risk of a claim and make your firm more attractive to an insurance underwriter.

©2014 Massachusetts Bar Association