We’ve all seen the ads. Don’t buy from the little guy when the big boys have so much more to offer. Of course, how many of us truly foresaw AIG’s troubles, the bankruptcy of GM, the collapse of Lehman Brothers, or that even a few large insurance companies would buy small banks in order to qualify for TARP funds in order to shore up the books. I don’t know about you, but I was not exactly pleased about the size of all those government bailouts. As I see it, big definitely doesn’t equate with better, more secure, well managed or anything else. Big is just that, big. I’m not impressed by the size of any particular corporation.
But wait, the big boys then follow up with ads that promise the best price. It’s the old “We won’t be undersold!” song and dance. I will go to my death bed reminding my kids that you get what you pay for. While $20 knockoff sunglasses may make you look good and feel great about the savings, over the long haul they won’t properly protect your eyes. You get what you pay for. I also remember that old joke about GM. They lost money on every car they sold, but they made up the difference with volume. That turned out well, didn’t it? If the price isn’t appropriate for the product or service being sold, one of two things will happen; the price will go up or the company won’t remain in the marketplace.
So, what does all this have to do with malpractice insurance for lawyers? Quite a bit actually, particularly in a market such as the one we’re in right now. The fundamentals say pricing should go up yet it isn’t. This is due to a Catch 22. Raise rates now and risk losing customers. Even governments are facing this conundrum. Tax revenues are declining across the board due to the economy, but if you raise tax rates to try and make up the difference, you risk putting even more people out of work due to the additional strain on the economy and you’re potentially back where you started, if not worse. It’s that simple. When a big boy says we’re the only ones who can survive in these troubled economic times, I suggest you take it with a grain of salt and remember what happened back in 2008. I believe that all of you are capable of making a determination on that one on your own.
Now, I need to be clear on one point. This isn’t a “buy from ALPS” piece. My intent is to try to help others help themselves when it comes to purchasing insurance. When someone says we’re bigger and thus better and we can undercut anyone on price, ask yourself if that rings true and is meaningful to you. If so, fine. Buy from the big boys. They may or may not raise your rate next year and they may or may not remain in your market. That is going to depend on how much money you made them, whether or not their investment portfolio performed well, and what global losses looked like among all their lines. They’ll let you know.
Yes, to some degree the above statement will be true for any company, big or small. If you can’t make money, invest wisely, and responsibly handle your claims, you’re not going to remain in business for long. The real issue for me is this: just what will I get for my dollar when I decide to purchase an insurance policy. Price is just one piece of the equation. There is value in knowing things like is the company financially stable on its own? Has the company ever pulled out of one or more markets, and if so, why? Then the big question is just what coverage will the policy provide? As an example, there is a huge difference between a policy that has defense costs inside limits (often referred to as a self cannibalizing policy) and a policy that has defense costs outside policy limits. Often a low price quote is an indicator that defense costs are inside limits, that the deductible is high, and/or that policy limits are low. Or perhaps the professional liability coverage is an incidental endorsement to another policy. If that is the case, boy I start to wonder just who would actually handle my claim, should one ever arise? Then there are the “softer” issues. Does the company value me, meaning can I call and ask questions to the decision makers? Do they invest in my local bar in support of grass roots initiatives? Do they give back to the legal community as a whole? Do they offer loss prevention programs? Are all claims staff licensed attorneys? Personally, I prefer to work with businesses that take the time to get to know me, value my business, and invest in my profession in some manner. This will matter more to some than others and that’s fine.
In sum, try not to fall prey to the temptation to focus only on the present when purchasing a malpractice policy. To focus solely on price and/or to buy into the sales hype, although tempting and so easy to do, is a misstep and here is why. In essence, you’re about to pay to make certain that someone has your back should the worst happen. Focus on that, on what happens when dealing with a claim. Who is this company and just what are they saying they will do for you then? I believe this to be a better perspective from which to make an insurance decision. After all, do you really want the company you’re about to place in the position of “having your back” be the one who threw you a low ball price? Take the time to ask the right questions and make sure. Learn to compare policies on the issues that are important to your practice and company services that are important to you and always remember, you get what you pay for.