Ontario’s Workplace Safety and Insurance Board (WSIB) is proposing significant changes to the employer Rate Group Classification System and premium rate-setting processes. Consultations are underway, and the board expects to start implementing the proposed changes starting in 2018, with full implementation by 2021. The “Proposed Preliminary Rate Framework” aims to simplify the system and make it fairer.
The existing system is complicated. For one example, employers in the same rate group are assessed at the same premium rate regardless of whether they have an effective health and safety program or not. To adjust for this apparent lack of fairness, the WSIB created three experience rating programs: NEER, CAD-7 and MAP. To reduce the complexity of the system, the WSIB’s proposed framework would abandon the experience rating programs and end multiple rate groups.
The proposed framework would result in additional benefits by changing the way employers report insurance earnings, predict their annual premiums and measure their own performance from year to year.
How will things change?
WSIB currently classifies businesses using a system called Standard Industry Classification, commonly referred to as SIC. There are 155 rate groups and 840 classification units. An employer’s rate classification depends on the business activity of that employer. All employers who are classified in the same rate group are assessed the same base premium rate, irrespective of that employer’s accident history or claim cost performance. An employer with multiple business activities is eligible to obtain multiple rate classifications contingent on its ability to segregate the payroll for each activity.
Under the proposed framework, the WSIB is looking at adopting the newer North American Industry Classification System (NAICS), which has 22 class structures. Under the NAICS, the WSIB would classify employers based on business activities, with no distinction for their size or ability to segregate their earnings. The experience rating programs would be replaced by “Risk-Adjusted Premium Rate Setting” whereby employers would be grouped by risk and accident costs into three bands:
- High risk bands – Premiums would be greater than the average
- Average class rate – Premiums would be average
- Lower risk band – Premiums would be lower than the average in their class rate
Employers would no longer be rewarded with an annual lump sum premium rebate or levied a lump sum surcharge, but would rather see an opportunity to use a consistent improvement in performance from year to year to move into lower risk bands and lower premium rates. Each risk band would represent about a five-percent change in premium rate.
The premium risk band system would provide an upper limit to protect employers from a sudden increase in costs due to a catastrophic event. However, the WSIB also proposes that in cases where an employer’s performance is consistently poor with high and disproportionate costs year after year, a further premium surcharge might apply.
The proposal would entail that an average premium rate for each class would be set based on the collective liability of new claims costs of employers in that class, past unfunded claim costs for the class and administrative costs of the system. A rate adjustment would then be applied to each individual employer based on their own claims experience and insurable earnings and the actuarial predictability of future costs. Different risk bands would then be set for each class with a different premium rate for each band.
In other words, WSIB would look at an employer’s individual risk profile and predictability of experience to determine the extent of an employer’s premium. Once this is established, WSIB will compare the employer’s safety performance against the average of other employers in the same classification to determine an employer’s premium. The new “Proposed Preliminary Rate Framework” would look at a period of six years of claim experience to set premium rates. (Currently it is a four-year window in NEER.)
Based on individual accident experience, employers would move up or down on these “bands.”
The WSIB will eliminate the Second Injury and Enhancement Fund (SIEF) cost relief program, which currently reduces costs for employers with an injured worker who had a pre-existing illness or injury that contributed to or prolonged the recovery from a workplace accident.
The WSIB is holding consultations in phases from March to July 2015 and would like feedback from interested stakeholders. The board has posted the consultation documents, executive summaries and backgrounders on their website, and plans to hold a “What We’ve Heard” session in the fall of 2015 to share the feedback of key stakeholders and participants in the consultation process.