Part two – Class level premium rate settings
This blog is part two of a three-part series which examines the proposed fundamental 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”.
A major question now that needs answering is whether premiums will change due to this re-categorizing. This blog will outline how the WSIB plans to maintain fair premium rating through the implementation of a “Class Level Premium Rate Setting”. Let’s dive in…
Will my premiums change?
The answer to this question is… likely. Here is where things are going to become very different. Under the current system, employers in the same classification and rate groups pay the same premiums, regardless of their own claim experience. For example, our cabinet making company from Part 1 had very few claims over the last couple of years, and yet they know they are paying the same premiums as their competitor even though the competitor may have been repeatedly showcased in the media for serious workplace accidents. Is that fair? The proposed new system says no. Instead, WSIB proposes to assess employers individually on their own claim experience to determine their premium rate. How? Through the implementation of “Class Target Premium Rates”.
The Class Target Premium Rate System is exactly what it sounds like – a target rate within each of the previously discussed 34 industry classes that would reflect the collective experience of all employers. This “rate” is based on three components and is not unlike the current system in that it covers administration costs (legislative/overhead), new claims costs (expected future costs) and past claim costs. These amounts would obviously vary between each of the 34 proposed classes, as demonstrated by the below figures.
So…what’s the difference?
The distinct difference between the current system and the proposed lies in the “Employer Level Premium Rate Adjustments”. This “adjustment” is WSIB’s proposed method of adjusting the Class Target Premium Rate for each individual employer to arrive at an employer’s individual “Actual Premium Rate” relative to the “Employer Target Rate”. How is this calculated?
This is another major difference. The WSIB is proposing to calculate adjustment based on RISK, which would be represented by an employer’s own claim experience and insurable earnings relative to their Class Target Premium Rate. This adjustment will be known as a “risk band” and will represent a series of divisions within each class where employers will be placed relative to their Class Target Premium Rate. “Risk bands” will be discussed in more detail in part three of this blog.
What is rate disparity?
The idea of charging Ontario employers with premiums at the class level (Class Target Premium Rate), as opposed to the rate group level, brings several questions to mind. One being the possibility of “risk disparity” or when premium rates vary significantly from the average experience of the class. In other words, risk disparity sets the stage for the possibility of newly grouped businesses being subjected to a premium rate that misrepresents their risk. For example, under the proposed 34 classification structure, our cabinet making company may now be grouped with other business activities not previously included under the current “manufacturing” definition.
What if your company is now required to pay a premium rate at the class level that is either significantly higher or lower than your current rate group premium? The WSIB plans to address said disparity by including premium rate limitations on upward and downward movement through minimum and maximum risk bands within each industry class.
This measure is intended to achieve fairness in the premium rate process and will be explored further in part three of this three-part series. Check back soon for further information on Employer Level Premium Rate Adjustments.
For more information on how to get yourself in a prime position on your NEER prior to the implementation of this new system, visit www.clearpathemployer.com.
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