When you’re starting or growing a law firm, controlling expenses matters. Technology, payroll, marketing, office expenses and professional services can quickly add up, so it makes sense to look for opportunities to save money.
Insurance is no different.
If one professional liability or cyber insurance option costs significantly less than another, a law firm owner should want to understand why.
Sometimes the answer is simple: you’ve found a more competitive insurance company.
Other times, the lower premium reflects differences in deductibles, limits, exclusions, prior acts coverage or other policy terms.
That’s why shopping for affordable law firm insurance shouldn’t be about automatically choosing the cheapest or most expensive option. The goal is to understand what you’re buying well enough to determine whether the protection matches the firm you’re building.
Why Law Firm Insurance Quotes Can Vary
Two law firms can receive very different insurance premiums, even when they have the same number of attorneys.
Insurance companies may consider factors such as the firm’s areas of practice, revenue, claims history, years in business and the limits and deductibles being requested.
For professional liability insurance, the work attorneys perform can be particularly important. A firm handling certain types of transactions or higher-value matters may present a different exposure than a firm with a different practice mix.
Cyber insurance underwriting can involve another set of questions, including the firm’s cybersecurity controls, information it maintains and financial procedures.
The result is that a lower premium doesn’t necessarily tell you whether an insurance option is better or worse.
It tells you that you need to understand what is driving the difference.
Look Beyond the Premium, Limit and Deductible
When comparing law firm insurance quotes, the easiest numbers to compare are usually the premium, policy limit and deductible.
Those numbers matter, but they don’t tell the entire story.
Suppose two professional liability proposals both offer a $1 million limit. One is several thousand dollars less expensive.
Before automatically choosing the cheaper option, look at what else differs between the policies.
How are defense expenses handled? Are there exclusions that could affect the work your firm performs? Are there sublimits for certain exposures? Does the deductible work the same way under both policies?
The same principle applies to cyber insurance. Two policies can advertise similar overall limits while providing very different amounts of coverage for specific types of losses.
The goal isn’t to find hidden problems in every inexpensive proposal. It’s to make sure you’re comparing the actual protection rather than three numbers on the front of a quote.
Prior Acts Coverage Can Matter When Starting a Law Firm
Attorneys leaving another firm to start their own practice should pay particular attention to how prior work is being handled.
Professional liability insurance is commonly written on a claims-made basis, which makes the policy’s treatment of prior acts and its retroactive date important.
An attorney shouldn’t assume that purchasing a new policy automatically means every matter handled before the new firm opened is now protected by that policy.
The circumstances surrounding the attorney’s departure, the prior firm’s insurance and the new policy can all affect the analysis.
If you’re leaving Big Law or another firm to launch a boutique practice, this is an area worth understanding before choosing a policy based primarily on price.
A cheaper proposal may still be the right choice. You simply want to know what work the policy is intended to protect.
Make Sure the Policy Matches the Work Your Firm Actually Performs
Your law firm isn’t defined only by the number of attorneys on the payroll.
The type of work you’re performing matters too.
A boutique firm may begin with one practice area and expand over time. Attorneys may join the firm. Clients may become larger. Matters may become more valuable or complex.
The firm’s insurance should reflect those changes.
This is one reason automatically renewing the same policy or quickly purchasing coverage based on old information can create problems. The policy may still reflect the law firm you had two years ago instead of the one you’re operating today.
When comparing options, make sure the information provided to the insurance company accurately reflects the firm’s current work.
Review Client Contracts and Insurance Requirements
Sometimes the amount of insurance a law firm needs isn’t determined entirely by the firm’s own preference.
Clients may require certain insurance limits or types of coverage as part of their contracts.
That creates another reason to look beyond price.
A lower-cost policy doesn’t create much value if it doesn’t satisfy an important client’s contractual requirements.
Before selecting limits, consider whether existing or prospective clients have insurance requirements the firm needs to meet.
For a growing boutique firm pursuing larger clients, this can become increasingly important.
Cheap Insurance Isn’t Necessarily Bad Insurance
There is nothing inherently wrong with choosing the least expensive insurance option.
If two policies appropriately address your firm’s exposures and one carrier offers better pricing, saving the money can be a smart business decision.
The mistake is assuming price tells you everything you need to know about the product.
Law firm owners should be able to understand what changes when they move from one proposal to another.
If the premium decreases because the deductible increased, you can decide whether the firm is comfortable retaining more risk.
If a limit decreased, you can evaluate whether the savings justify the additional financial exposure.
If meaningful coverage changed, you can decide whether that coverage matters to your firm.
And if nothing material changed and the premium is simply better, take the savings.
That’s an informed decision.
Online Law Firm Insurance Can Be Convenient, but Convenience Isn’t Advice
Technology has made it possible for some law firms to obtain insurance quotes quickly online.
That can be useful, especially for smaller or newer firms.
The important distinction is between the ability to purchase insurance and the ability to evaluate it.
An online application can collect information and generate options. It may be a perfectly appropriate way for a firm to purchase coverage.
But law firm owners still need to understand whether the information submitted accurately represents the firm and whether the coverage being offered addresses the exposures they care about.
Technology can make the transaction faster.
It doesn’t eliminate the need for judgment.
Ask What You’re Buying Before Deciding What It’s Worth
When comparing insurance for your law firm, start with more than the premium.
Consider the work your firm performs, the clients you represent, prior work that may need to be addressed, the limits you’re carrying, contractual requirements and the financial risks the firm is comfortable retaining.
Then compare the insurance options.
Sometimes the cheapest policy will be the right answer. Sometimes paying more will provide protection the firm decides is worth the additional cost.
There isn’t one answer that applies to every law firm.
The goal is to know enough about the decision that you’re choosing intentionally.
Because when something goes wrong, the amount you saved on the premium may matter far less than what the policy actually does.
Before choosing your law firm’s insurance based on price, ask:
What exactly am I buying, and does it match the law firm I’m actually building?
Leaving Big Law to start your own firm? Schedule a conversation with The Bunker to review the risks your insurance program is designed to address.
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