ALIA 2020-2021 Levy Reduced by 23% to a 10-Year Low
The Alberta Lawyer’s Indemnity Association (ALIA)’s 2020-2021 annual levy will be reduced to $2,533 for Part A and $388 for Part B, for a total of $2,921. This is the lowest that the Part A levy has been since the 2009-2010 Policy Year and the lowest that the Part B levy has ever been.
This marks the third year in a row that ALIA has reduced the amount of the annual levy payable by Alberta lawyers (“Subscribers”) participating in the mandatory indemnity program (the “Program”).
In addition to ALIA’s historic application of capital to reduce the levy calculated by its actuary, this year ALIA’s Board of Directors approved an extraordinary one-time additional reduction to further help Subscribers address the impact of the current financial crisis and COVID-19 pandemic public health crisis.
This unprecedented step is further to the reduced first installment of $500( plus GST), announced March 27, 2020, which was designed and implemented by ALIA at the request of the Executive Committee of The Law Society of Alberta (Law Society) to provide cash flow relief for those facing financial hardship.
Payment of the levy is due by June 30, 2020. Invoices will be made available online through Lawyer Portal in mid-May.
Further information:
- Key Points Regarding the 2020-2021 Levy
- The Levy-Setting Process
- Calculation of the 2020-2021 Base Levy
- Levy FAQs
Key Points Regarding the 2020-2021 Levy
- ALIA has again reduced the base levy payable by Subscribers in the Program.
- As compared to last year:
- the combined levy was reduced by approximately 23% or $871, from $3,792 to $2,921;
- the professional liability / negligence (Part A) levy was reduced by approximately 24% or $811, from $3,344 to $2,533; and,
- the misappropriation (Part B) levy was reduced by approximately 13% or $60, from $448 to $388.
- The reduction in total base levy was supported by the application of capital funds in the amount of almost $10 million, or $1,423 per Subscriber.
- The Part A reduction was comprised of two components:
- a reduction of $1,107 per Subscriber from the theoretical levy ($3,956) set by the Program’s actuary, in accordance with ALIA’s Board-approved capital target calculations; and
- an additional extraordinary one-time further reduction of $316 to help Subscribers address the impact of the current financial and public health crisis.
- Although ALIA was able to reduce the levy this year, Subscribers must remain vigilant in attempting to avoid negligence claims by implementing proactive loss management strategies to reduce claims.
- For those who decide to pay the levy in installments, the first instalment, due June 30, will be only $500 instead of half of the base levy, as was required in previous years.
The Levy-Setting Process
ALIA’s board of directors (the “Board”) establishes the annual levy after consideration of certain information including claims history, trends, costs of insurance, investment income and actuarial projections. The Board also considers the recommendations of the Board’s Executive Committee, professional advisors (including its actuary), and ALIA’s management.
The actuary’s recommendation is largely based on their annual calculation of the costs of operating the Program, including defense costs and payment of claims. This is why increased claims costs usually necessitate a higher levy.
In the levy-setting process, the Board first determines the “theoretical levy”, essentially the cost of covering claims, including defending Subscribers, repairing errors, and compensating the public, and operating the Program. This is the amount that would have to be paid by each Subscriber in the absence of any upward or downward adjustments. Those potential adjustments are changes to the theoretical levy that the Board deems appropriate for reasons including: building or reducing the Program’s capital to ensure the financial health of the Program, maintaining stability of the levy over time, and reducing the long-term cost of the Program.
In deciding each year whether the Program’s capital is at the right level, the Board receives the recommendation of management and the Program’s appointed actuary and uses a capital target tool specifically developed for the Program by its actuary, Willis Towers Watson. If the Board determines that the capital is higher than is required, it applies the excess amount to reduce the theoretical levy. However, if the capital is lower than it should be, the Board increases the levy and uses the difference to replenish the capital. The result is the actual levy that is required to be paid by each Subscriber in exchange for the indemnity coverage provided by ALIA.
Calculation of the 2020-2021 Base Levy
For the 2020-2021 policy year (July 1, 2020 to June 30, 2021), after consideration of all relevant factors, the Board accepted the recommendation of management and the Program’s appointed actuary and set the theoretical levy for Part A (professional liability negligence) at $3,956, and then used capital to reduce that amount by $1,107 per Subscriber. In light of the current financial and public health crisis, the Board authorized an additional extraordinary one-time further reduction of $316 to be applied to help Subscribers at this time. These reductions resulted in a Part A base levy assessment of $2,533. This is a reduction of $811 from the 2019-2020 Part A base levy.
This reduction was implemented despite a 14% increase in the number of reported negligence claims this past year (the number of new negligence claims in 2018-2019 increased from 787 to 897). ALIA’s ability to provide this levy reduction was as a result of a number of factors, including:
- an increase in Program capital due to positive investment returns allowing for a larger capital contribution;
- savings and avoided costs achieved by ALIA this year as a result of its corporate restructuring, known as the Enhancing Efficiency and Effectiveness project;
- ALIA’s ability to resolve some historic claims for less than the reserved amount of those claims;
- ALIA’s actuary continuing to refine a risk philosophy in keeping with a non-profit mandatory program;
- ALIA’s ability to resolve a number of potential claims with no payment;
- ALIA’s collection from CLIA of approximately $4.5 million out of ALIA’s equity account;
- ALIA’s continued focus on enhancing its operating efficiencies; and
- a projected increase in the number of Subscribers.
The Board also accepted the recommendation of management and the Program’s appointed actuary and set the levy for Part B (misappropriation) at $388. This represents a reduction of more than 13% from the 2019-2020 Part B levy. ALIA was able to make this reduction based on a better than expected loss history from misappropriation by Subscribers.
Levy FAQs
The amount of the 2020–2021 levy is $2,533 for Part A and $388 for Part B (for a total of $2,921), plus GST.
In order to assist its Subscribers with cash flow issues this year, ALIA has put in place a Program for its Subscribers who choose to pay instalments, to pay a first instalment of only $500 for the 2020-2021 policy year. Further details, announced March 27, 2020, can be found here.
You can expect to receive communications regarding the levy invoice by mid-May.
Payment of the levy is due by June 30, 2020. Payments can be made in a single payment or by two instalments. As noted above and in the ALIAdvisory dated March 27, 2020, for the 2020-2021 policy year only the first instalment has been reduced to $500. Invoices will be made available online through LSA’s Lawyer Portal. Click here to learn about the 2020-2021 Annual Indemnity Levy Payment Information.
Payments can be made via online banking or electronic funds transfer. Please visit the website for further payment option details.
The Program is run on a non-profit basis. There is a direct link between the amount the Program pays out to defend Subscribers and satisfy claims against them, and the total amount of the levy assessed on Subscribers. Where possible, ALIA uses excess capital to reduce the theoretical levy; however, as ALIA’s capital fluctuates over time and capital reductions may not always be possible, it is important that Subscribers remain vigilant in claims prevention as future levies can be reduced by lowering the frequency and severity of claims made against Subscribers.
No. The number of claims reported to ALIA increased by 14% for Part A while the severity (the cost of each claim) stayed fairly constant. Despite the increase in reported Part A claims, the theoretical levy remained in line with last year’s theoretical levy.
The number and severity of Part B claims did decrease although historically the cost of Part B is much less than Part A.
Despite the increase in reported Part A claims, ALIA was able to lower the Part A Theoretical Levy and increase the application of capital to further reduce the Levy payable by Subscribers, as a result of:
- an increase in Program capital due to positive investment returns allowing for a larger capital contribution;
- savings and avoided costs achieved by ALIA this year as a result of its corporate restructuring, known as the Enhancing Efficiency and Effectiveness project;
- ALIA’s ability to resolve some historic claims for less than the reserved amount of those claims;
- ALIA’s actuary continuing to refine a risk philosophy in keeping with a non-profit mandatory program;
- ALIA’s ability to resolve a number of potential claims with no payment;
- ALIA’s collection from CLIA of approximately $4.5 million out of ALIA’s equity account;
- ALIA’s continued focus on enhancing its operating efficiencies; and
- a projected increase in the number of Subscribers.
ALIA and the Law Society are working to avoid or reduce claims in various ways, including the following:
- Providing ALIAlerts to warn members about current fraud schemes that are targeting lawyers and their firms.
- Conducting educational outreach sessions to Subscribers on claims and loss prevention.
- Auditing new law firms to ensure responsible practices are put in place.
- Enhancing our electronic trust transaction review capabilities and ongoing risk assessments to identify and address unacceptable practices.
- Providing information and resources, such as ALIAdvisory education articles.
- Supporting the Legal Education Society of Alberta and ASSIST to help Alberta lawyers through educational and supportive resources.
Looking forward, ALIA continues to investigate opportunities to reduce the levy by enhancing loss prevention activities and assessing options for future Program funding.
Some types of negligence are avoidable, such as some limitation and deadline claims. Surprisingly, this is the largest area of losses for the Program and, accordingly, the largest contributing factor to the base levy. There is an opportunity for Subscribers to lower the levy by lowering costs for all types of claims over the coming years.
As the frequency and severity of claims directly affect the levy, ALIA continues to stress the importance of loss prevention, and ask Subscribers to avoid or minimize claims. ALIA’s claims funding model ensures that money saved on claims will result in lower levies in future years.
Yes, although participation in the Program is mandatory for Alberta lawyers in private practice, there are some who are exempt from the levy assessment.
Alberta lawyers who are employed by (or who contract with) a government, university, person or enterprise other than a law firm, and who practice solely within the scope of that employment or contract, are not assessed the levy. These lawyers are not covered by the Program and, accordingly, either they, their employers, or private insurers (if they purchased insurance) would be responsible for any losses.
Additionally, some Alberta lawyers are indemnified at no charge for pro bono services through approved organizations as set out in Rule 148 of The Rules of the Law Society of Alberta.
Finally, for a time, lawyers who had practiced for over 50 years were exempted from paying the levy as long as they remained claims free. Although this exemption has been removed, those lawyers who received it at the time have been grandfathered.
All Subscribers historically shared the burden of incurred losses equally by paying the same levy. However, some Subscribers may be subject to special assessments (called “surcharges”) in addition to the base levy, due to their individual claims history. Surcharges are made pursuant to The Rules of the Law Society of Alberta and are set at rates approved by the Board.
There is a $5,000 individual deductible for Professional Liability claims.
The coverage under Alberta’s mandatory Program is set out in the Alberta Lawyers’ Professional Liability and Misappropriation Indemnity Group Policy (the “Group Policy”). It includes both errors and omissions coverage (called Professional Liability Indemnity) and misappropriation coverage for Subscribers providing certain professional services. The details of the coverage, including important terms and applicable exclusions, are set out in the Group Policy, a copy of which is available on the website. The 2020-2021 Group Policy will be posted in the latter half of June and will include details on applicable policy changes for the upcoming policy year. The summary below is provided for informational purposes and does not override or otherwise affect the interpretation of the Group Policy:
- Professional Liability / Negligence Indemnity (Part A)
Coverage of $1 million per occurrence with $2 million aggregate limit per year, subject to an individual deductible of $5,000 per Occurrence. Coverage includes damages that the Subscriber becomes legally obligated to pay (including repair costs) and defence costs. - Misappropriation Indemnity (Part B)
Misappropriation limit of $5 million, with a profession-wide Annual Aggregate Limit of $25 million.
Yes. Although ALIA does not sell excess coverage, it recommends that all Subscribers investigate purchasing optional excess coverage for additional protection, and that they periodically review their excess coverage to ensure it is proportionate with the risk and value of transactions undertaken by the Subscriber and their law firm.
Although excess coverage may be purchased through various brokers, ALIA works with the Canadian Lawyers Insurance Association (“CLIA”) to assist Subscribers in the purchase of excess coverage. Applications are available on CLIA’s website.
If you have questions or comments regarding the levy, please contact ALIA.
ALIA is the member-funded, non-profit corporation that manages the mandatory indemnity program for non-exempt Alberta lawyers, providing economic protection to them and compensation to members of the public who have suffered losses resulting from those lawyers’ acts or omissions, including professional errors and misappropriation.