In simple terms, the basic purpose of underwriting is to evaluate risk, decide whether that risk will be accepted or not, and, if accepted, determine an appropriate premium to cover the risk. To borrow from a previous ALPS Report, “[a] quote that has been floating around the world of underwriters for a long time is ‘The perfume of the premium must overcome the stench of the risk.’” Underwriters sure have a strange sense of humor.
Nevertheless, when it comes to malpractice insurance premiums, if a risk is accepted, there are numerous factors that affect the pricing of that risk. Some of those factors include the jurisdictional location of the firm, the practice areas of the attorney(s) in the firm, and loss control measures/claims history of the firm.
We would like to focus on one of the loss control measures that a firm may employ to help reduce the cost of the “perfume.” If you have ever filled out our application, you know that we ask if each insured attorney is staying current on developments in his or her practice areas through continuing legal education (CLE). This information is valuable to us for two reasons:
- Attorneys in most states are required to obtain a specified number of hours of CLE each year.
- The extent to which such requirements are fulfilled beyond the minimum number of hours is likely to reduce the frequency of professional errors committed by and ultimately the number of claims made against the firm. Assignment 3 – Lawyers Professional Liability, pg. 104-105, 2002 Professional Liability: Non-Medical Text and Course Guide, Third Edition, International Risk Management Institute, Inc./Professional Liability Underwriting Society.
So, you may ask why does ALPS care if I have CLE, if it is already likely a state requirement? Why is our ALPS account manager always reminding us about CLE credits? Your account manager may even point out how many of the firm’s attorneys did or did not receive CLE credit. Well, the answer boils down to underwriting.
If you polled ALPS’ account managers, they would likely agree that one of the most frequently missed questions on the ALPS Individual Attorney Supplement (IAS) is question #3 which asks: “In the twelve (12) months prior to the requested effective date, did you complete at least three (3) hours of CLE seminars on Ethics, Risk Management, Loss Prevention and/or Office Management?” It’s easy to overlook that question (it’s one of the few questions that is not pre-filled on the IAS).
In part, your account manager is asking about the CLE seminars because it’s their job to ensure that they most accurately present your specific firm to underwriting. An accurate and complete application helps us get to that sweet-smelling ‘perfume.’ By asking about attorney(s) completing their CLE, they are making sure you aren’t missing an opportunity to reduce the price of your risk. Any lawyer that completes three hours of continuing legal education in the areas of ethics, risk management, loss prevention and/or office management automatically qualifies for a 10% credit to be applied to that attorney’s premium. Depending on the firm’s size, that credit may significantly reduce the cost of the “perfume.” And it gives the ALPS underwriter greater confidence that the attorneys in the firm present a risk that is suitable to be included in the entire pool of ALPS insured attorneys.