Insurers specializing in the legal professional liability (LPL) sector have experienced considerable growth in policyholders’ surplus over the past five years, but premium levels have remained relatively stagnant during that timeframe, according to a new AM Best report.

The Best’s Market Segment Report, titled “Specialty Legal Professional Liability Insurers Continue to Grow, Despite Varied Performance,” takes note of the myriad challenges facing law firms, such as the more-litigious societal environment, third-party litigation financing and social inflation that has contributed to a greater frequency of nuclear verdicts.

For an AM Best-tracked composite of 16 insurers focused on the LPL segment, limited geographic market reach is a factor in the modest premium growth. Operating performance has varied within this segment since COVID-19, more so than that of the commercial casualty composite. In eight of the last 10 years, the LPL composite’s operating ratio has been better than the commercial casualty composite. In 2024, the LPL composite had an operating ratio of 58.7 versus the commercial casualty composite’s 84.7.

Since 2020, year-over-year growth has increased modestly, in the low single-digit range annually from 2021 through 2025. In total, from 2020 through 2025, the composite’s annual direct premium written increased by more than 18% after increasing by less than 1% from 2015 through 2019.

According to the report, recent rate increases in the LPL market have been primarily in single digits. LPL specialists contend with competition from established multinational professional liability carriers like Chubb and AIG, which necessitates innovation in product development and excellent customer service to remain viable in markets within the segment. “When considering the high level of competition, including new entrants, the LPL market appears healthy,” said David Blades, associate director, Industry Research and Analytics, AM Best. “Complexities including fraudulent claims and cybersecurity threats pose significant risks that LPL insurers must manage to maintain a viable market for their clients.”

The LPL composite appears to be dealing with the effects of social inflation, considering their loss adjustment expense ratios have remained consistently higher than those of their commercial casualty counterparts for the last five years. Additionally, the claims-made nature of LPL coverage elevates claim-related expenses.

While claim frequency for legal firms has been relatively stable, the severity of claims has increased due to rising defense costs and an increasing number of million-dollar-plus claims. The rate environment hardened after 2020 in response to these trends and overall inflationary costs tied to the COVID-19 pandemic. “Emerging liability risks that lawyers and law firms need to navigate concerning AI adoption, cybersecurity, and increased regulatory or legislative scrutiny supported the need for increased LPL insurance premiums,” said Dylan Catania, associate analyst, AM Best.

To access the full copy of this Best’s Special Report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=365624.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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