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Bar News - August 15, 2003 'Hard' Market Continues for Legal Malpractice Coverage By: Suzanne Morand News from NHBA Insurance Agency THE INSURANCE BUSINESS is known for being cyclical, and lawyers and law firms shopping for professional liability coverage know that the "hard market" is here -meaning that premiums are increasing, coverage provisions are tightening and clients with issues may have difficulty obtaining coverage. A hard market is the part of the insurance cycle where demand outpaces capacity, allowing for price increases and greater returns for the insurers. Most insureds saw their premiums increase in 2002 from 5 percent to 30 percent, and some had to rely on higher deductibles and self-insurance as a defense against high rates. Others turned to alternative markets, such as the surplus lines market, which is generally the market of last resort. From the early 1990s through 1999, premiums decreased each year resulting in, to use an illustration, a $100 policy in 1993 costing $30 by 1999. Throughout that time, insurance companies relied on investment income to bolster profits and offset unprofitable underwriting results. With the economic downturn of the past several years causing historically low interest rates and declining stock values, insurers increased rates in the hope of attaining an underwriting profit. What does the future hold for insurance premium increases? Experts we've consulted or read commentary from expect that price increases in the high-single digits are in store for 2004. The good news is that commercial loss ratios (the portion of premium dollars used to pay claims) dropped sharply in 2002, which could result in insurance costs leveling off in 2005. In an April 2003 article, Partner's Report, a newsletter for law firm owners published by the Institute of Management & Administration (IOMA), said the outlook for the next year remains "bleak," but that the cycle will again come around as insurance carriers return to the field and competition heats up. Suzanne Morand is the senior account executive for the NHBA Insurance Agency, Inc., exclusively serving the insurance needs of members of the Bar. Contact her at smorand@nhbar.org or at 603 224-6942.
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