ALPS continually tracks our underwriting and claims performance against the broader market and looks for good information to help us keep the big picture in focus. Last week the Wall Street Journal reported in an article entitled “Lawyers Behaving Badly? Malpractice Claims Up in 2012” (6/17/2012), that claims activity against lawyers have not subsided after the increase resulting from the 2008 downturn of the U.S. economy. The survey discussed in the WSJ article was conducted by Ames & Gough, a specialty insurance brokerage firm. While their survey generally considered larger insurers and larger law firms, it contains some great data and a lot of material from which ALPS and our insured lawyers can learn about the current risk environment.
In my view, the downturn came as more of a crash and a lot more people and businesses simply tossed their keys to the house or business on the desk of the bank and walked away. The banking industry fell into such disarray that many of them simply didn’t pursue ancillary claims against their customers’ advisors at the time. That said, there were plenty of claims to go around and the industry as a whole reacted with rating pressure both at the retail and wholesale levels. In particular, high-dollar claims increased, creating a potentially expensive problem for larger law firms, according to the survey. Regardless, the survey states, “If there’s some good news this year about malpractice suits brought against law firms, it appears to be that claim volume isn’t growing.” Real estate remains the practice area seeing the largest number of claims and severity of claims. Interestingly, ALPS has seen the continued strong claims frequency but have observed a bit of a pullback in real estate claims and not seen the severity in claims generally that the survey indicates. Simply, I think it’s just a matter of scale and the size and position of ALPS firms against those surveyed by Ames and Gough.
While ALPS’ own statistics supports the ultimate conclusions reached in the Ames & Gough survey, the rural nature of our book showed us some strikingly different characteristics. For rural lawyers, the conflict of interest claims came to a higher degree in the area of domestic relations than industry statistics indicate. We saw fewer business failure related claims based on bad advice and a slight increase in claims related to bankruptcy and business reorganization. On an interesting side note, during the height of the economic crisis we saw fewer claims against the plaintiff’s bar, but the lull proved to be short lived as it has bounced back as the national economic recovery slowly pushes ahead.
The interesting thing from the ALPS perspective; we saw slight increase in severity, but not to the degree of the industry. This kind of data brings with it a different set of problems for the retail industry and the reinsurance industry as the equilibrium between a company’s retention and what it cedes off to reinsurers unbalances from the norm. It either impacts what they have to pay reinsurers because the claims are hitting reinsured layers, or it hits their bottom line more than anticipated because the losses haven’t fallen where the actuaries projected. This creates a hardening (higher pricing) at the retail level, the reinsurance level or both. The jury’s still out as to where this will ultimately fall.
These claims trends have disrupted the market and forced all insurers to be smart underwriters and work claims efficiently to make sure that their customers get treated fairly and that the companies and the industry remains strong and healthy. For ALPS, we’ve seen greater demand for our rural focused product as the bigger carriers re-evaluate their market positioning and geographic commitments. One of the nice things about serving more of a niche market is that we know it well and evaluation has less to do with geography (we’ve never left a market) and more to do with making sure that each risk we insure gets priced fairly against all other risks we write.
ALPS lawyer’s professional liability business is about making sure all our policyholders get a great product at the best possible price we can offer.
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