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Professional liability market for attorneys hardens following financial crisis

Insurance rates hardening as attorneys' clients try to recoup lost funds

Professional liability market for attorneys hardens following financial crisis

The professional liability insurance market for attorneys is hardening, say experts.

“We're seeing a firming market approaching a hardening market. We're dealing with a lot of the issues” that began with the 2008 financial crisis and the litigation that developed as a result of failed mergers and acquisitions, said Michael Richmond, sales executive at Chicago-based brokerage The Horton Group, which focuses on firms with 10 to 100 attorneys.

Former clients are trying to recoup lost funds and going after their attorneys, said Mr. Richmond, who noted higher frequency and severity of claims have been factors in the increased rates.

Anne Marie Davine, New York-based U.S. law firm practice leader at Marsh Inc., said in the small-firm segment, which Marsh defines as 50 to 200 attorneys, rates may range from a 5% decrease to a 10% increase, with the average being a 5% increase.

In the medium-size segment of 200 to 500 attorneys, rates range from flat to increases of 10%, with the typical rate being a 2% to 5% increase. Among large firms, rates are flat to up 12%, with the typical rate being a 2% to 5% increase, Ms. Davine said.

Meanwhile, capacity is plentiful.

There is an “incredible amount of available capacity” for lawyers professional liability, said Ms. Davine, who estimates capacity to be “well in excess” of $500 million.

Particularly in the excess layers of $20 million to $25 million, “there is more capacity up there than most firms need, so there is an awful lot of competition taking place in that space, as well as the new entrants into that segment,” she said.


A factor that makes lawyers professional liability attractive is the line is syndicated, so no one insurer bears the entire loss. “You have that spread across multiple insurers, and there is a comfort level that insurers have with the fact that the risk is spread. They're not taking it all on themselves,” said Ms. Davine.

“Generally speaking, if the law firms themselves are well-managed, underwriters in this space believe they can ascertain which firms are the right risks” and which “they can take a pass on,” she said.

No two risks are the same, said Kim Quarles, New York-based senior vice president at Willis North America Inc. Underwriting for two law firms of the same size could vary widely based on their areas of practice, procedures, claims history and where they practice, she said.

Ms. Quarles said one development in the sector is attorneys who have been laid off by large firms are establishing their own practices. A $2 million or $3 million policy may cost only $3,000 or $4,000, but the coverage comes with restrictions and less willingness to manuscript, she said.

Meanwhile, “there is fairly good evidence out there that there are probably more attorneys than there is real legal business,” which puts stress on many small attorneys who are “vying for a finite amount of business, and who have to constantly reinvent themselves and make sure they're adding value to the client,” said Joseph G. Shores, president of Rolling Meadows, Ill.-based Monitor Liability Managers L.L.C. and of Chicago-based Berkley Select L.L.C., both units of W.R. Berkley Corp., who focuses on firms with 10 or fewer attorneys.

There is “going to be a shakeout over time” and there is going to be a separation “between those who add value and those who cannot” and “insurance carriers have to understand that,” Mr. Shores said.


At the other end of the size spectrum, more law firms “are thinking about globalization and global issues,” said Robert Cook, New York-based managing director at Aon Risk Solutions, a unit of Aon P.L.C.

“Really large, sophisticated firms are devoting a lot of resources to risk management, and particularly technology within risk management within the firms,” including issues such as the confidentiality of information and its vulnerability to outside parties, Mr. Cook said. “They're all investing a lot of time and effort to make sure that information remains secure.”

“The whole role of cyber and computerization has just created a lot more questions about security, so I think the firms are making doubly sure that everything remains secure,” Mr. Cook said.

The outlook for next year for lawyers professional liability coverage is “much of the same, with hopefully more recovery taking place in 2014,” said Horton's Mr. Richmond.

“For the short term, it's going to stay harder,” said Ms. Quarles.

“When you look at all the things that happened” during the financial crisis, “we are in a much more benign economic environment right now,” Monitor's Mr. Shores said. “Many of our insureds will probably not see a great deal of difference in how we go forward with our policies.”

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