Your professional liability insurance premium is most often based upon the number of full time lawyers in your firm. As the size of the firm increases however, the cost per lawyer actually decreases. This rule comes from the idea that the limit of liability is shared by all lawyers under the policy, so larger firms are credited in the premium calculation with a staff size credit. This credit can be as little as 2-3% of the annual premium up to 30% depending on the insurance company’s own historical claim results or more often some compilation of the factors used by other insurance companies writing the coverage as gleamed from insurance department rate filings.
Credit % of premium based on staff size
Using the chart above, a solo proprietor with $1,000,000 in insurance coverage may pay $2800 in annual premium. For that same $1,000,000 in coverage, a five lawyer firm would pay $2576 per lawyer or $224 less per lawyer. If the insurance purchaser was a ten lawyer firm, the original $2800 is reduced to $2,380 or a savings of $420 per lawyer.
In the American Bar Association’s Standing Committee on Lawyers Professional Liability report, Profile of Legal Malpractice Claims 2008 -2011, the percent of claims by firm size in the study seems to support the usage of a staff size credit. It showed that the smaller the firm size, the more likely a claim. The report, however, was quick to point out that the data was not a reliable indicator of whether larger or smaller law firms represent more risk. The data was biased because 70% of the claims used in the study came from firms with fewer than five lawyers and came from carriers that predominately write small law firms. None-the-less, insurance companies today typically allow no staff size credit for or apply a debit . . . to firms of 1-2 lawyers.
Percentage of claims by firm size
What are your thoughts on the use of staff size credits in the calculation of Legal Malpractice Insurance premiums? Do small law firms represent more risk to insure than larger firms? What size firm is more likely to encounter a large claim?