WCBs facing cost increases

Employers in B.C., Alberta concerned about future rates
By Mike Moralis
|Canadian HR Reporter|Last Updated: 09/25/2001

Accident prevention and strong financial markets over the past few years have contributed to several consecutive years of workers’ compensation premium rate reductions across Canada, but tougher times are looming.

After several years of rate decreases, the Workers’ Compensation Board of British Columbia told employers in August to expect a rate increase. The preliminary rate figures won’t formally be set until November, but the B.C. Chamber of Commerce says the increase could be as much as 16.7 per cent for hotels and 11.4 per cent for restaurants. Chamber president John Winter has written to Minister of Skills Development and Labour Graham Bruce, saying that an “increase in payroll taxes” could only hinder economic growth.

Winter’s letter says B.C.’s rates are “already high when compared to competing and neighbouring jurisdictions.” He called for a freeze on WCB rates at 2001 levels, pending a review of core WCB services by the government.

For 2000, the B.C. WCB announced that a “historic low injury rate and investments exceeding actuarial assumptions” resulted in an operating surplus of $75 million and reduced premiums for 2000. While the final figures aren’t in for 2001 it appears revenues and costs will be even, but by 2002 the board will be in a shortfall position and premiums will increase.

Donna Freeman, manager of corporate affairs for the B.C. WCB, says the average rate increase that was floated to employers in August as a scenario for 2002 was 4.8 per cent, with some adjustment for heavy industry and high-risk industries. The maximum allowable annual increase in any year is 20 per cent.

“We’ve had four consecutive years of rate decreases. Employer rates have been subsidized by record investment returns,” says Freeman, who adds that employers have been warned for the past three years that the subsidy would eventually end. “You do not have record investment returns forever.”

In Alberta, two WCB-related reviews were tabled with the government over the summer. One on WCB services and the other regarding the province’s WCB appeals system. Among the proposed changes is the adoption of a formal accountability framework that would fall under the watchful eye of the Provincial Auditor, and the creation of a new advisory body, the Workers’ Compensation Authority, to monitor the implementation of changes.

The Association of Canadian Search, Employment and Staffing Services (ACSESS) has concerns about the recommendations’ potential to increase costs for employers. A major issue is the plan to establish a tribunal to re-evaluate previously rejected compensation claims. ACSESS says that could increase benefit costs by $50 million to $250 million. The Alberta government is holding public consultations on the recommendations this fall.

In the 1990s, changes in generally accepted accounting practices forced workers’ compensation boards to confront unfunded liabilities, triggering major reforms. As part of the efforts to become fiscally responsible, WCBs put a new emphasis on accident reduction, as well as management of compensation and disability costs.

Boards realized that they were unable to manage compensation in isolation, and set out to engage employers and workers in reducing accidents. “That opened Pandora’s box,” says compensation consultant Rob Stewart, president of Calgary-based Pragmatic Solutions Ltd., who says a second round of potentially more controversial reform appears to be underway.

“For years, employers treated WCB premiums as a cost of doing business, and paid unquestioningly.” And as long as rates were declining, potential conflict was minimized. But now, with a faltering economy as well as changing demographics and other factors that hint at rate increases, “they want to hold boards accountable,” says Stewart.

The cost of WCB premiums in B.C. is about 1.8 per cent of payroll, says Terry Bogyo, director of corporate planning for the board. That’s comparable to other provinces, he says, while stressing that comparisons can be misleading because benefits structures vary so much from one jurisdiction to another. B.C.’s WCB system has no unfounded liability, so that’s not an issue, although it has been in other provinces.

There are other factors that make comparisons difficult. In B.C., survivor benefits are awarded for life when a spouse is killed in a workplace accident; in Alberta, they are phased out over a five-year period. Gains or losses from investments are amortized over five years in B.C., buffering rates, while rates in Alberta are based on stock market projections.

The biggest thing that affects premiums is benefits, “and the biggest driver there is the duration of the disability,” says Bogyo. In fact, 85 per cent of the money spent by the WCB goes to the costs of benefits, which are being driven up by a variety of factors including an aging workforce and rising medical costs.

“The two pillars of workers’ compensation have to be prevention, and early and safe return to work,” says Bogyo. And of the areas where costs can be controlled or reduced, accommodating return to work “is one of the most significant ones where employers could do more.”

While B.C. has reduced its injury rate, “what we seem to be preventing are a good number of the relatively minor disabilities,” Bogyo notes.

“The average age of a worker in B.C. has increased quite markedly over the past

five to 10 years,” and the age of a worker affects how fast they recover, Bogyo says. That, in turn has a direct bearing on compensation costs. Between now and 2010, “we’re going to see an increase of about 40 per cent in the population between the ages of 45 and 64,” he says, warning that one of the implications of the aging workforce is that the duration of disability will increase.

Stewart says there are a host of barriers to making return to work easier, including employers who don’t provide timely information to the WCB, or do not do enough to provide alternate duties for injured workers. But he stresses his view that front-line staff often haven’t bought into cultural changes embraced at the board level. Stewart also says WCB systems are not flexible enough or responsive to provide “real-time” decisions about a workers’ readiness to return to work.

In Ontario, the Workplace Safety and Insurance Board (WSIB) says there has been a 29 per cent decrease in employer premium rates since 1996, dropping from $3 per $100 of payroll $2.13 per $100 this year. “We have no reason to believe it will go up for next years,” says spokesman Perry Jensen. That’s partly because Ontario has one of the lowest accident rates in Canada and North America, he adds.

Ontario has a high proportion of white-collar workers, which contributes to a lower rate of serious accidents than in other jurisdictions where more people work in primary resource industries. The WSIB had an unfounded liability of $11.5 billion in the mid-1990s, but has cut that to $6 billion.

Mike Moralis is a Toronto-based freelance journalist.

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