Law firm risk management: How project management can reduce the long-term cost of professional liability insurance
According to a recent post on the Wall Street Journal online, the cost of legal insurance is going up.
Professional-liability insurance typically has been among the top operating costs for law firms, after compensation and real estate… [These days] law firms are loading up on insurance against expensive liability claims as they increasingly find themselves on the wrong end of lawsuits.
The piece went on to explain that “Insurers are telling us that not only is frequency up, but so is claim severity. It's just costing more to defend and litigate a claim.” And when the costs paid out by insurers go up, premiums are sure to follow.
When underwriters set the rates for a particular firm, “there is no doubt that insurers are interested in how the firm manages risk,” according to Bob Feagin, former managing partner of Holland & Knight and now Special Counsel at Paragon Risk Management Services Ltd , a company that advises US and UK law firms on risk management, business practice management and loss prevention. “Some insurers subsidize risk management programs designed to reduce losses from potential claims.”
That is where the link to new developments in legal project management (LPM) comes in.
A few weeks ago, we were contacted by Paragon’s Director Natasha Watson. Squire Sanders, the law firm that offered the client/firm collaboration workshop we wrote about last week, is a Paragon client. When Squire Sanders purchased its professional liability insurance through Paragon and McGriff Seibels, a risk management budget was included as part of the policy. The funding for our workshop came from that risk management budget.
LPM can reduce professional liability risk many ways, including helping lawyers to control quality, to meet critical deadlines, to avoid or quickly resolve fee disputes with clients, and to maintain active, open and timely communications with clients on all aspects of every engagement.
For example, a recent article in Risk Management magazine quoted StuartPattison, a vice president at CNA (one of the largest commercial insurers in the US), about the insurance implications of properly defining scope: “A well-drafted engagement letter can spare future turmoil by spelling out the precise nature of professional services including the attorney handling the matter, specific duties that are not covered, a time-frame and a definition of who the firm will -and will not- be representing.” The article went on to note that “professional liability insurers now consider a well established risk management program as a pre-requisite for insuring a legal practice.”
When Paragon Risk Management Services Ltd asked LegalBizDev to join their panel of Preferred Service Providers, of course we agreed. The panel includes consulting organizations specializing in such areas as professional responsibility and actuarial and loss prevention services. LegalBizDev is the only company on the list that offers training and support in legal project management.
In the future, Paragon clients will have the ability to finance our programs by drawing on a predetermined risk management budget which Paragon negotiated with insurers on behalf of these clients.
Programs like this are likely to increase in the future. As Holland & Knight’s Bob Feagin summed it up:
Project management is the key to improving client service, and client service is the key to managing risk. When law firms succeed in managing risk and reducing losses, that has an undeniable impact on lower rates.
Our new relationship with Paragon is a win-win-win-win. Law firms win by improving their risk profile, which should lead to a more favourable claims record and ultimately to lower premiums. Law firm clients win by getting more value and better service through hands-on project management. Paragon wins by strengthening relationships with its law firm clients and its insurers and by reducing the risk of future claims. And LegalBizDev wins by having an opportunity to provide our services to law firms that will fund the program through budgets they have already dedicated to risk management.
We always knew LPM could help law firms reduce risk. But to be honest, it is only recently that we have come to understand that LPM could also reduce the long-term cost of their liability insurance.