How Tariffs Could Affect the Professional Liability Insurance Market

Robert Hartwig, Clinical Associate Professor of Finance & Insurance, and former President of the Insurance Information Institute, recently posted on Linkedin his strongly negative views on President Trump's tariffs.  In his post, he stated that import taxes (i.e., tariffs) will “unquestionably raise claim severities across all auto and property lines”. He also noted that insurers must "be vigilant in monitoring underlying claim severity trends and incorporate them into ratemaking as quickly as possible, to avoid falling behind, as happened with inflation after the pandemic."   

While it seems clear that auto and homeowners insurance will likely increase as a result of the implementation of tariffs due to their expected inflationary impact on auto parts and construction materials, it is less clear at this point as to how tariffs will impact the professional liability insurance market. In our discussions with various insurance executives, Architects and Engineers was the only major line of professional liability business that was identified to have an impact, again mostly due to the increased costs of construction might have on future A&E claims costs.

That being said, to the extent that tariffs increase inflation generally, those increased costs over time will tend to ripple through the economy in the form of increased salaries due to costs of living adjustments. To the extent that law firms defending insureds in professional liability claims increase their hourly rates in response, there would likely be increased upward pressure on rates that would likely be seen in a few years after the implementation of the tariffs. 

In his LinkedIn post, Hartwig also stated that financially, with the S&P 500 teetering on the edge of an official bear market (20% decline), P&C insurers could face an unrealized loss on their equity holdings approaching $200 billion. Moreover, recession fears and the expectation that the Fed will soon need to cut rates which would push interest rates down, would also cut into insurer investment income. 

In a medium to long tail lines of business such as professional liability, to the extent that insurers are earning less investment income on their portfolios, it could also force them to raise rates to make up the difference.  However, the magnitude of such effects are still subject to much speculation at this point, as the final form of the tariffs seem to have a long way to go before they are etched in stone.

Older Plaintiff Attorneys Getting Claims Due to Lack of Technology

We have had some large claims in our Non-Standard LPL program involving Plaintiff firms missing the Statute of Limitations deadline for their plaintiff cases.  Since there was a series of claims involving similar fact patterns, we did a deep dive into our book of business to discern if there was any pattern.

A common thread that we found among many of these claims were mistakes committed by older attorneys that were still relying on older calendaring methods.  Many of these firms have been around for such a long time, it seems that they have not seen the need to update their systems in order to take advantage of newer software such as Clio that helps law firms keep track of important deadlines, including Statute of Limitations deadlines.

In fact, we found that many of these law firms still do not even have websites.  Most Plaintiff firms are constantly looking for new cases (as anyone can see with all of the Plaintiff firm billboards seen all over the country), yet these older attorneys seem to continue to attract new clients using old methods.

Plaintiff attorneys should use software to help keep track of important deadlines, including statute of limitations deadlines for their personal injury cases, for several compelling reasons. First and foremost, software provides a high level of accuracy and reliability, significantly reducing the risk of human error in tracking crucial dates. This is particularly important in complex cases with multiple deadlines. Additionally, automating deadline tracking frees up valuable time for attorneys, allowing them to focus more on substantive legal work rather than administrative tasks, thereby enhancing overall productivity and efficiency.

Modern legal software often integrates with other tools and systems used in legal practice, such as case management software, document management systems, and calendaring tools, providing a more organized and streamlined approach to managing cases. Adopting such technology allows older attorneys to stay current with industry standards and best practices. Many of these software solutions are designed to be user-friendly, with intuitive interfaces and support services, making the transition to using technology smoother for attorneys who may not be as familiar with modern software.

Moreover, the increasing need for remote work capabilities makes software solutions that provide remote access invaluable. Attorneys can access important information and deadlines from anywhere, ensuring they stay on top of their cases even when away from the office. Incorporating software into legal practice for tracking deadlines offers numerous benefits that enhance the overall management of personal injury cases and support the successful resolution of client matters.

Yet it may be a simple fact that these law firms are in the surplus lines market because they have not adopted the latest risk management techniques.  Nonetheless, our Non-Standard LPL underwriters will be examining this aspect of Plaintiff firms more carefully going forward.