As of 2020, Ontario’s board will have implemented new rate-setting structure
Big changes are coming to the way the Ontario Workplace Safety and Insurance Board (WSIB) classifies Schedule 1 employers and sets and adjusts their premium rates.
Beginning in 2020, the board will implement what it calls an innovative new framework that will make the rate-setting process more transparent and better align employer premium rates with the actual costs of the workers’ compensation system.
The changes will make the system easier for employers to understand, according to Sean Baird, vice-president of employer services at the WSIB.
“The new system will allow us to provide rates that more accurately reflect a business’s own risks and experience,” he said. “We’ve been working with businesses for a long time to develop this model that boosts fairness and transparency.”
The board began consultations on the new framework over two years ago. At the time, it proposed implementing the framework in 2019; however, it later pushed the date back to 2020 to give employers more time to adjust.
“We understand that changing the way we calculate premium rates for businesses across Ontario cannot happen overnight. An implementation date of Jan. 1, 2020 will allow for a smooth transition and ensure businesses have time to prepare for the changes they will see under the new system,” said Baird.
The new framework will not apply to Schedule 2 employers, who are individually liable for the costs of benefits for their employees who suffer work-related illnesses or injuries.
It will replace the current system that the WSIB uses for classifying employers with one based on a North American Industry Classification System (NAICS), which was developed by statistical agencies in North America, is simpler to use and easier to understand since it groups businesses based on type of economic activity and is updated more frequently than the current system. The Canada Revenue Agency and Statistics Canada both use it.
Instead of grouping employers into one of 840 classification units and 155 rate groups, as it currently does, the WSIB will classify employers into 34 classes/subclasses adapted from NAICS. The board will assign employers to a predominant class based on their largest percentage of WSIB insurable earnings.
The board will then use a two-step process to determine each employer’s premium rate for the year. First, it will set a projected premium rate for each class/subclass based on their collective responsibility for new injury and illness claims, past claims costs (including unfunded liability costs), and administrative costs.
Next, it will set what it calls a “risk adjusted” premium rate, based partially on the employer’s own claims experience and insurable earnings when compared to that of their class.
Once the new framework is in place, each year the WSIB will send employers registered with the board a projected premium rate and an actual premium rate for the coming year.
The projected rate will show how much an employer should pay in premiums to fund both its share of claims costs and the collective cost for its class; however, the rate is not necessarily what the employer will have to pay in the following year.
To set the actual premium rate that an employer will pay, the WSIB will take into account factors related to the employer’s risk band (employers in each class are further placed in hierarchical divisions that represent a different level of accident risk compared to the risk profile of their class), its premium rate in previous years and the collective costs of the class in which it is placed.
“Projected premium rates will provide you with the future direction (up or down) of your insurance premium rates. Projected rates will help businesses prepare and adjust for future rate changes,” said Baird.
With the new framework, some employers will see rate increases, while others may have their rates go down. To help employers prepare, Baird said the WSIB will gradually phase-in any changes.
“Changes will also be capped so they are spread over time to allow businesses to adjust to any changes gradually. We expect the majority of employers to reach their projected rates within five years of implementation.”
Since the new framework will use an employer’s own claims experience to set its premium rate, the board will eliminate its experience rating programs, such as New Experimental Rating Plan (NEER), Construction Industry Plan (CAD 7), and Merit Adjustment Program (MAP), once the framework is in place.
Experience rating programs use what the board calls a “retrospective approach.” Employers in the same rate group have the same initial premium rate, but individual employers may receive premium rebates or surcharges at a later date once the WSIB compares their expected claims costs to their actual costs.
The new framework will use a prospective approach.
“Experience-based adjustments will be incorporated into each employer’s rate individually each year,” said Baird, generally eliminating the need for rebates and surcharges.
The board says one of the drawbacks of using a retrospective approach is that there can be “significant changes from year to year that result in employers moving from a surcharge position to a refund position or vice-versa.” With experience rating, it says some employers have a 150 to 200 per cent change in their premiums from year to year.
Even without experience rating, however, the WSIB will still have the authority to levy surcharges against employers who repeatedly have high claims costs.
“The model will allow for surcharges in very limited cases where employers continue to exhibit very poor claims performance. In these cases, there would be a two-year period of education and health and safety engagement with affected businesses before any surcharge is applied,” Baird said.
While the new framework will change the way the board sets premium rates, it will not affect the types of earnings that employers must include when calculating their gross annual payroll for paying workers’ compensation premiums. Payments such as wages, salaries, bonuses, commissions and taxable benefits will still be included, and items such as top-ups of WSIB benefits and maternity benefits paid in addition to employment insurance benefits will still be excluded.
Baird said the new framework would also not effect the way in which the WSIB sets its annual maximum for insurable earnings or its premium remitting procedures.
“Maximum insurable earnings are set by a formula which takes into account the average industrial wage in Ontario as published by Statistics Canada. This will continue under the new model. Due dates and reporting processes will not change.”
To support the new rate framework, the WSIB is developing new policies on topics such as workers’ compensation coverage, the new classification structure, premium rate setting and adjustments, associated employers, temporary employment agencies, and employer eligibility for single or multiple premium rates.
Stakeholder feedback on the draft policies was due last month. The board says its goal is to publish the final policies at least one year before it implements the new rate framework.
The board has also begun an “extensive education campaign” to inform employers of the changes.
“Every business registered with the WSIB will be receiving a letter with information about the rate framework, the new classification system and what their new classification will be in the new model, along with instructions on how to update or change the new classification online,” said Baird.
“This is the first step in making sure employers are informed and aware of what will be changing in the rate framework. Our aim is to keep employers engaged with the WSIB as we transition into the new model. In 2018, we will begin providing further information to help employers prepare for the rate framework, including what premium rates will look like under the new model.”
