Employer Level Premium Rate Adjustments
This blog is the final chapter of a three-part series which examines the fundamental proposed changes to WSIB’s method of business classification and application of premium rates. Part one of this series explored how WSIB proposes to re-categorize Ontario businesses into 34 industries, based solely on “business activity”. Part two dove into how the WSIB planned to maintain a fair premium rating through the implementation of a “Class Level Premium Rate Setting.”
The final question on everyone’s mind is how the new system will affect potential rebate and surcharges. This blog will outline how the WSIB proposes on rewarding and encouraging employers to improve their health and safety outcomes.
If I have minimal claims, will I still receive a rebate?
No, but you will also no longer receive a surcharge! Remember in Part Two of this series when we talked about the cabinet making company’s competitor who was recently showcased in the media for a string of serious workplace accidents? One would expect the company to receive a hefty surcharge from WSIB come September. Not anymore! Under the proposed system, the WSIB is now planning on setting employer centric premium rates that will consider the individual employer’s own claim experience for the upcoming year and will gradually move the employer toward a premium rate that is more reflective of their own claim experience. Simply put, any increase or decrease in one year’s claim costs will be reflected in the following year’s PREMIUM RATE, as opposed to a rebate or surcharge.
In Part Two of this series, we briefly touched on how WSIB will calculate this adjustment through risk. The remainder of this chapter will provide a high-level look at WSIB’s proposed nine-step process calculating Employer Actual Premium Rates.
Step A: Determining an Employer’s Actuarial Predictability
In this step, WSIB will determine how much an employer’s premium rate will be affected by their own individual claim experience versus the collective experience of their respective class and will be based primarily on insurable earnings and the number of allowed claims in a given year. For example, employers with high insurable earnings and a high total number of claims will have more consideration placed on their individual experience, as opposed to those with lower insurable earnings and a low number of total claims, whose consideration will be more heavily placed on the collective experience of their class.
Step B: Determining an Employer’s Weighted Claims Cost
The WSIB is proposing to review all of the claims costs that occurred over a rolling six year period. This means that for the 2017 premium year, WSIB would use 2010 to 2015 injury years.
Step C: Determining an Employer’s Weighted Insurable Earnings
The WSIB would then obtain the insurable earnings for the same six year period.
Step D: Determining an Employer’s Risk Profile
Using steps B and C, the WSIB would then determine an employer’s risk profile using the following formula.
Step E: Determining the Class Risk Profile
In order to compare how the employer’s risk profile stands against the class risk profile, the WSIB will need to obtain the total claims costs and insurable earnings within the employer’s class.
Step F: Determining an Employer’s Adjusted Risk Profile
The WSIB would then multiply the employer’s Actuarial Predictability Factor (Step A) against their Risk Profile (Step D) in order to obtain an employer’s Adjusted Risk Profile. By using an adjusted Risk Profile, the WSIB is better able to generate a premium rate that is reflective of the employer’s own past experience, while not subjecting them to unpredictable premium rate fluctuations.
Step G: Determining an Employer’s Risk Profile Index
The WSIB would then assess the employer’s results against the class risk profile (Step E) to determine how this employer performed versus the average of all the other employers in the same class.
Step H: Determining an Employer’s Projected Premium Rate
In order to calculate this, the WSIB will need to determine the employer’s target RISK BAND relative to the Class Target Premium Rate, as well as the collective cost component of the class.
What’s a RISK BAND? Under the proposed system, each employer’s premium rate will be adjusted higher or lower than the Class Projected Premium Rate based on the risk that the employer brings to the system. In short, Risk Bands are hierarchical series of divisions within each class where each division represents a different level of risk where employers will be placed, relative to the risk band corresponding to the Class Projected Premium Rate. Employer therefore with similar risk profiles would be grouped together and pay a common premium rate.
Step I: Determining an Employer’s Actual Premium Rate
In this step, the WSIB will gradually move an employer toward their Project Premium Rate in a manner that would enable them to better predict their WSIB premiums from one year to the next using a “three risk band limitation movement”.
A Gradual Approach
This gradual approach to what WSIB considers greater employer accountability will arguably provide an opportunity for employers to take steps to address workplace drivers of their high claims costs. The WSIB is proposing to structure the gradual approach as follows:
We want to hear from you! Contact Anna Aceto-Guerin from Clear Path Employer Services with your questions on the Proposed Rate Framework’s Employer Level Premium Rate Adjustments. Want to learn more about how to get yourself in a prime position on your NEER prior to the implementation of this new system? Join us for our upcoming NEER workshops to learn more.
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