The dust is settling on the impact of the changes to the funding scheme of the WSIB, which came into effect on January 1, 2020. Over ten years ago, the need to revamp the financial system was ignited as the significant unfunded liability reached the “tipping point” of collapse. The debt obligations reached zero before the new model was implemented. Today, after years of consultation, we reflect on the changes to the new funding model of the WSIB: the good, the bad and the ugly.
The significant points of change are:
- A reduction in the 155 rate groups for determining insurance premium to 34 classes based on a company’s predominant business activity. Predominance is determined by the allocation (size) of payroll
- Multiple rates are allowed where the employer can demonstrate distinct and independent business purposes
- A new experience rating program that prospectively sets premium rates (no more rebates or surcharges), considering the individual employers’ claim experience relative to their industry. Factors considered are:
- Insurable earnings, number of claims and claim costs
- Predictability scale: Based on the size of the employers and volume of claims
- Graduated per claim limit: Based on an employer’s level of cost risk through actuarial predictability, there is protection for smaller employers from excess costs. Individual firm limits are based on where an employer lands on the new class risk band
- The risk bands are a hierarchical series of divisions within each class (premium rate increments of 5%). An employer would face a maximum premium increase or decrease of the three risk bands (15%) per year, derived from an annual employer premium rate and the target premium rate set for that employer
- Six-year weighted window of claim costs and premiums: 1/3 (years of reference 0 to 3 years) and 2/3 weighting (the years of reference 4-6; 6 being the more recent years). This allows employers to have improvement/effort in safety and claims management strategies reflected into the rate setting but also means claims are “active” for the 6 years
- WSIB offering consideration for a reasonable transition path to ensure employers can gradually adjust to the new premium rate setting: Employers can only increase one risk band from 2020 to 2021 and two risk bands from 2021 to 2022, as the system stabilizes.
What Is ReedGroup Doing?
As employers are struggling to grasp an understanding of the new system, ReedGroup has adapted analytics to help organization walk through the new financial model and get a better sense of their current and future performance under the New Rate Framework. The report provides a 3-year forecast (2020-2023) based on a new predictive claims cost model specifically developed to display the new rates setting model. Within these projections, there is a focus on KPI’s, such as Minimum/Maximum Liability, Manageable Risk and Secured versus Unsecured Incentives.
Meeting Expectation? Six Months In
There are winners and losers. This was to be expected. The reduction in the number of rate groups provides a simpler approach to the classification of industries. The new system continues to allow for multiple classifications. However, complex corporate structures paying the same premium rate for all lines of business may not be equitable. As the model developed, it was clear that any company with a history of consistent experience rating surcharges was not offered to receive a lower premium rate comparative to previous years as a company’s claim history was built into its new 2020 premium rate.
From a positive perspective:
- The WSIB built in a transition phase to limit any spike in premium rates while providing employees with a full decrease if warranted. This transition is to last for two years
- A company can now predict its future workers’ compensation premiums and understand the direction or movement to its expected “target” premium rate, rather than the surprise of a rebate or surcharge at year end
- If there are changes via claim cost reductions and claim reversals the WSIB will recalculate the 2020 premium rate
- Overall volatility in terms of annual costs is significantly reduced
We can appreciate the WSIB for its many consultations and the outreach seminars to explain the new concepts; however, the early pronouncements of a simplified new approach to funding will take time to embed. The presentation of the Extended Premium Statements to explain how a company’s 2020 premium rate is determined, is complex and often requires additional support and explanation.
What has been observed is the following:
- If a company has been multi-rated in the past, the current 2020 premium rate may be unexpectedly high or low, depending on payroll and claims experience, hence the cost of worker’s compensation may now be higher
- The NEER program will receive its final adjustment for years 2016, 2017, 2018, and 2019 in September 2020. The return to work initiates of a company in 2020 are not captured limiting adjustments that reduce the reserve values for those claims
- The frequency of WSIB experience rating statement with unknown projections and financial impact calculation of an employers’ efforts on cost containment and reductions is more complex
The entirety of what organizations are performing today will influence premium rates within the new rating system. Organizations need to be fully aware of their current risks and opportunities.
About the authors:
Michael Mitchell, Senior Consultant and Paralegal
With over 30 years of experience with Workers’ Compensation legislation and consultation, Mike’s knowledge has resulted in significant cost recovery/avoidance achievements, as well as successful WC program design and implementation.
Julien Collet-Gonnet, Consultant
As a Workers’ Compensation Consultant, Julien is an expert in understanding client costs and risks, providing clients with numerous performance analyses and experience rating forecasts to identify opportunities for improvements.
Information provided on this blog is intended for general educational use. It is not intended to provide legal advice. ReedGroup does not provide legal services. Consult an attorney for legal advice on this or any other topic.