How to keep insurance costs low: A guide for lawyers

Everyone likes to save money whenever and wherever possible. Just because insurance is crucial for your law firm, it doesn’t mean it has to become a financial burden — in fact, finding cheap business insurance is possible, even for lawyers.

Like any other business expense, insurance costs can add up over time and may even change, which can put a strain on your budget. Fortunately, there are effective ways to manage insurance costs, without compromising essential protection from costly malpractice claims.

In the long run, operating without proper coverage can lead to financial consequences far exceeding any policy premium. Smart insurance shopping helps you balance affordability with comprehensive protection.

Do lawyers need to have legal malpractice insurance?

We all make mistakes. After all, “to err is human.” Even the most diligent and experienced attorneys can’t fully avoid the risk of a malpractice claim. 

What’s more, a disgruntled client could file a complaint even if it’s unfounded. Say a client doesn’t like the results of a court case, and they blame their lawyer’s actions for the outcome. That client then attempts to recoup their losses by filing a malpractice lawsuit against their attorney. It’s a familiar tale for any lawyer.

That’s why legal malpractice coverage is essential — it protects you from the unexpected. So, the answer to the question “Do lawyers need to have legal malpractice insurance?” is yes, absolutely, 100%, no question.

For those who choose to forgo malpractice insurance, a lawsuit could wipe out any savings and ruin the sustainability of a practice.

That said, it’s easy to understand why some, particularly smaller firms and solo practitioners, might question the value of paying for legal malpractice insurance, especially if they’ve never had to file a claim. 

Rather than deciding against insurance, a better option is to look for cost-effective solutions, with cheap business insurance that doesn’t compromise protection. Would you stop paying the rent if the lease for your firm’s office space increased? Of course not, but you would probably start looking for a new office space that’s more affordable. The same goes for legal malpractice insurance. 

What affects the cost of insurance for lawyers?

Every law firm is different, which is why there are many factors that can impact how much lawyers pay for insurance. Here’s a look at some of the main factors that can affect the cost of insurance for lawyers.

Location

Every state is assigned a minimum premium requirement per attorney by insurers. Even the county or city you’re located in could also affect your premium — if insurers notice that a majority of claims are coming from a particular place, they can increase rates for that county to make up for losses without increasing premiums on a state level. That’s why firms located in larger cities, like New York City, Los Angeles, or Boston, will pay higher insurance premiums than those in less populated areas.

Firm size

The size of your law practice has a significant impact on how much you’ll pay for insurance. In short, the more lawyers you have, the more you’ll need to spend to insure them all. Plus, the type of lawyers on staff at your practice — contract and part-time versus full-time — can influence your insurance costs.

Areas of practice

The legal fields that your firm practices in can significantly influence insurance costs. That’s because some areas of practice are known to attract more claims, making them riskier than others. In recent years, three practice areas — trusts and estates, business transactions, and corporate and securities — have experienced the most malpractice claims. Plaintiff’s personal injury and intellectual property are also known to be riskier areas of practice. Lawyers in any of these fields often see higher premiums.

Claims history

No surprise with this one. A law firm with multiple past claims will pay more for insurance than a firm that has never filed a claim. Claims are common with lawyers; in fact, four out of five lawyers can expect to get sued for malpractice at some point in their career. An insurer won’t be surprised if you’ve had a claim in the past, so be transparent and provide as many details about the matter as possible.

Years of experience

How long a lawyer has been practicing can affect insurance rates. Insurers use a “step rating” system to determine legal malpractice premiums. It’s based on the length of time a lawyer has spent with the firm. Because of this, many insurers offer lower premiums to new attorneys (step one). Experienced lawyers and larger firms are more vulnerable to claims due to their cases’ complexity and longer legal work history. 

Policy limits

The higher your policy limits, the higher the premiums. Determining policy limits should be based on various factors, such as the value of your assets, the amount of risk you’re willing to take, and, of course, your budget. Working with an experienced insurance agent or broker will help ensure you have sufficient coverage to meet your needs.

How evaluating risks can help save on insurance for lawyers

Whether you work as a solo attorney or are part of a growing firm, every law practice faces risks like cyberattacks and allegations of negligence. Identifying and understanding the risks your law firm could encounter is the first step in decreasing your liability exposure, which directly impacts insurance costs.

Implementing risk management best practices is critical for lawyers to understand and mitigate threats that could potentially harm their practice. 

Every law firm should have a process to identify risks — in day-to-day operations, cybersecurity, etc. — and evaluate threat levels and occurrence potential. Once risks have been assessed and evaluated, you can decide how to deal with them, which may involve avoidance techniques, risk reduction strategies, or risk transfer with insurance.

Below is an overview of some common risks for law firms. For more detailed information on the challenges that law firms face and how to protect against them, read our comprehensive guide on law firm risk management.

High-risk areas of practice

As mentioned, some areas of practice have a higher level of risk due to the nature of the cases involved and are associated with more malpractice claims than other legal fields. When deciding how much risk exposure you’re comfortable with, carefully consider your practice areas and how much time you want to dedicate to riskier fields.

Client data

Every lawyer holds a treasure trove of confidential information, from trade secrets and medical records, to intellectual property and skeletons in the closet that people would rather not have exposed. So, it’s no surprise that cybercriminals frequently target law firms.

According to a 2023 survey by the American Bar Association (ABA), 29% of law firms said they had experienced a security breach, while 19% reported not knowing if one had occurred. 

When it comes to client data, lawyers have regulatory and ethical obligations. Under the ABA Rule 1.6 Confidentiality of Information, attorneys must make reasonable efforts to detect breaches and avoid client data loss. Failing to do so can result in an ethical violation and costly lawsuit.

There’s no shortage of firms that have dealt with lawsuits for failing to protect client data, which underscores the need for all law practices to take cybersecurity seriously — and consider getting cyber insurance — before it’s too late. For more information, read our complete guide on data security for law firms.

Recruitment and retention

Embroker’s 2024 Legal Risk Index found that many law firms struggle with finding and keeping experienced attorneys, with 50% of those surveyed reporting they faced employee retention challenges in 2023.

How does recruitment and retention come into play with insurance? If your firm’s caseload becomes too much or exceeds the expertise of the attorneys available, that’s a surefire recipe for mistakes and errors to come up. And that means the risk of a claim goes up, which means your insurance costs go up.

Creating a hiring plan, introducing unique employee benefits, networking, and exploring remote or hybrid work options can help you find and keep talented individuals.

Technology

There’s a lot for lawyers to get excited about when it comes to new tech tools. McKinsey Global Institute estimates that technology could automate 23% of an attorney’s workload. And according to Thomson Reuters’ Future of Professionals Report, AI use could free up nearly 200 hours per lawyer in 2025, which translates to approximately $100,000 in new billable time per attorney annually.

More and more lawyers are turning to AI for research, document review, drafting standard documents, and case analysis. Some even think that in the not-so-distant future, not using AI may be considered grounds for legal malpractice claims.

However, adopting AI without oversight can lead to problems. There are plenty of lawyers who have faced repercussions for submitting filings containing information that generative AI programs made up. Recently, three lawyers involved in a personal injury lawsuit against Walmart were ordered to pay fines for citing fake cases generated by AI. A lawyer in Canada who allegedly submitted fake case law that ChatGPT fabricated was sued by the opposing counsel for the time they wasted going through the false information.

Generative AI is well-known for making up stuff, known as “hallucinations.” In its Formal Opinion 512 on generative AI, the ABA indicated that “even an unintentional misstatement to a court can involve misrepresentation.”  

AI use also brings the risk of a potential breach of confidentiality. Using a program that retains data (particularly if a third party has access to that information) is risky for lawyers.

We definitely don’t want to scare anyone off from maximizing the opportunities that AI tools offer. But making the most of those opportunities requires due diligence. Law firms using AI tools should establish clear policies regarding the permissible use of AI, including a review process for any AI-generated materials. 

How lawyers can keep the cost of insurance down

Understanding the risks associated with your practice and how to mitigate them, can help you save on insurance costs. Because with a bit of strategizing and planning, there are ways to lower insurance costs while still getting the appropriate coverage to protect your practice. And who doesn’t like saving money? 

Reduce high-risk practice areas

To lessen the cost of insurance, avoid submitting inflated hours or revenue for high-risk areas. But — and we can’t stress this enough — it’s important to be truthful. Downplaying or outright lying about your practice areas can cost you more in the long run if coverage for a claim is denied because of omitted information.

If you only do a small amount of business in a high-risk field, it may be worth weighing the financial impact of eliminating that work from your practice. 

For those working in high-risk practice areas, provide your insurer with a breakdown of the nature of your work in these fields.

Identify any part-time lawyers

If you’re not a solo practitioner, you’ll need to provide an overview of the types of lawyers employed at your firm. Identifying lawyers working part-time at your firm is important, as that can bring insurance cost savings. Even if your insurer doesn’t ask for specifics regarding who works at your practice, providing details about your firm’s roster can be advantageous.

Prioritize risk management 

Want to know a tried-and-true method for lowering insurance costs? Prioritize risk management. Proactive risk management not only helps mitigate losses, but also protects your firm’s reputation, financial stability, and competitive advantage. It just makes good business sense. 

The more risks your practice is exposed to, the more you will pay for insurance. Effective internal controls, such as case management software and systems for identifying conflicts of interest, can significantly reduce your firm’s risk exposure and insurance costs.

Keep in mind that risk management isn’t a once-and-done process. After you have a risk management plan in place, it’s crucial to regularly review it to ensure things are still relevant and effective. Because as your practice changes, so too will your risks.

If you’re unsure how to get the ball rolling with risk management, check out our guide on conducting a law firm risk assessment. 

Pay in advance

If you can afford it, paying your annual insurance premium in one lump payment can bring savings, as it eliminates the financing fees associated with paying in monthly installments.

Don’t overbuy coverage

It’s essential to consider how much coverage your firm actually needs. Buying the most extensive and expensive insurance package may seem like an easy way to ensure protection from claims. But if your law firm doesn’t require elaborate malpractice coverage, then it doesn’t provide any additional benefit. Having unnecessary coverage just means unnecessary spending. 

Raise deductibles

While a higher deductible can lower your upfront insurance costs, it means paying more out-of-pocket when you file a claim. 

Because of this risk, raising your deductible should be a last resort for saving money on insurance. If you do opt for this tactic, make sure you choose an amount that you can comfortably afford to pay.

Review policies annually

Reviewing coverage every year is something every business should do, law firms included. As your law practice changes, your insurance needs will also change. Keeping your insurance broker or agent informed about those changes can go a long way in helping save on insurance costs.

Compare quotes and insurers

Before selecting an insurance broker or agent, compare quotes from a few different insurers. With Embroker, getting an online quote only takes a few short steps.

While cost is an understandable consideration when shopping for insurance, it shouldn’t be the only factor. Working with an experienced business insurance broker, like Embroker, means you get an expert advisor who works on behalf of your firm to get the best rate available without compromising coverage.

It’s normal to have costs in mind when shopping for insurance. Just don’t forget to keep your law practice’s unique needs in the mix along with your budget. While it’s beneficial to save when possible, don’t let that jeopardize your practice by not being properly protected for whatever comes your way. 

After all, skipping out on insurance will end up costing you way more than any premium.