How do underwriters evaluate Legal Expense Insurance risk today?

In traditional P&C insurance, underwriting is about pricing events: a flood, a fire, a theft. In Legal Expense Insurance (LEI), it’s about pricing conflict. And in today’s climate of rising legal risk, brokers have a key role in helping clients understand what that means. 

“Like all insurance, LEI is about assessing frequency and severity,” explains Emily King, Director of Underwriting at ARAG Legal Solutions. “But in LEI, the loss is a legal dispute. And that is shaped by behaviour, process, and environment, not just events.”  

At ARAG, underwriting doesn’t end once a policy is issued. Claims data, helpline usage and insights from counsel continually feed back into how risk is assessed and how products evolve. This feedback loop enables ARAG to adapt their coverages and services as patterns of legal disputes shift over time. 

That means LEI underwriters must assess not only the chance that something will go wrong, but also the likelihood it will escalate into legal action. For clients, whether they’re individuals or small businesses, that uncertainty often leads to inaction, even when their rights are at stake, King says.  

LEI changes that equation by making legal support and coverage more accessible and affordable, giving clients a way to protect their rights before problems become lawsuits. 

What legal risk means in LEI 

Depending on the type of legal dispute, ARAG’s LEI will cover the cost of pursuing or defending the insured’s legal rights. This includes the cost of a lawyer, disbursements such as expert opinions, and opponent’s costs awarded against them. 

But unlike property or auto losses, LEI risks are often invisible until a dispute arises. And disputes are driven more by context than by catastrophe, King says. 

Employment law offers a good example. “Letting someone go doesn’t automatically lead to a claim,” she says. “But how it’s handled makes all the difference. The right process avoids risk; the wrong one escalates it.” 

LEI can also come into play earlier than many expect. “A claim might be triggered by just a legal letter challenging severance,” King explains.  

Jurisdiction, access to counsel, and economic conditions all influence risk. “During the pandemic, for example, layoffs increased and so did employment-related claims,” she says. “With LEI risk we see what happens at a societal level filtering down.” 

Underwriting what hasn’t happened yet 

A key part of LEI underwriting is not just asking whether a dispute is likely, but what kind of dispute it will become if nothing intervenes, King explains. “We ask things like: Will it resolve with a legal letter? Move to mediation? Or harden into multi-year litigation? Those pathway assumptions are central to how legal risk is priced.” 

LEI underwriters look for leading indicators, not just loss history, she adds. Traditional factors like industry class still apply. For example, a contractor is more likely to face contract disputes.  

But other signals are more behavioural. “If it’s a small business with no HR support, they may not know how to follow the right steps, which increases the chance of a claim,” she says. 

Jurisdictional factors play a key role. “Small-claims court limits vary by province, and in some jurisdictions, mandatory mediation or other processes change how a dispute unfolds,” she explains. “That affects how likely someone is to pursue an action, and how complex it becomes.” 

For small businesses with less legal resources, even modest disputes can escalate quickly and become financially overwhelming. “A $10,000 issue may be a nuisance for a large company, but it could be devastating for a small business without in-house legal support,” King says. “That’s where LEI makes a real difference. It gives small businesses access to justice they might not otherwise afford.” 

ARAG’s underwriting lens directly shapes its product design, not just in what’s covered, but in how risks are managed across the portfolio. Risk-reduction tools like ARAG’s legal assistance helpline don’t just offer support, they’re part of a broader underwriting strategy. By enabling early legal action, these tools help reduce the frequency, severity and duration of claims.  

“Sometimes, a five-minute call is all it takes to stop a dispute from escalating,” says King. “It’s that combination of insurance, legal assistance and proactive risk-reduction tools that makes LEI such a powerful solution.” 

Helping clients act before a dispute 

ARAG has built this solution with a mission to improve access to justice, King says, and brokers can bring that to clients by helping them understand the value of LEI before a dispute arises. 

It also clears up the common misconception that LEI helps only once a dispute is underway. “If clients wait until there’s a problem, it’s already too late,” King explains. 

The strongest LEI portfolios aren’t built on clients bracing for conflict. They’re built on clients empowered to seek legal guidance early. When brokers position LEI this way, they’re not only offering clients coverage, they help actively shape legal risk before it escalates.

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