As regular readers of our blog know, the Workplace Safety and Insurance Board (“WSIB”) has been developing a new Rate Framework (read our previous blog on this topic), which was approved in November 2016, and will begin coming into effect on January 1, 2020. The WSIB’s stated intention for the Rate Framework is to simplify and increase the fairness and transparency of how employers’ premium rates are set and adjusted by eliminating existing experience rating programs, assigning premium rates that more accurately reflect the risk/claims history of individual employers, and reducing year-to-year volatility in premiums.
The new Rate Framework is the largest change to the insurance scheme under the Workplace Safety and Insurance Act (the “WSIA” or the “Act”) in nearly 30 years and has serious implications for employers. The new Rate Framework will change how businesses are classified for the purposes of determining their premiums and will increase costs for some employers. Therefore, now is the time for employers that are not familiar with the new Rate Framework to get up to speed before the changes comes into effect.
The new Rate Framework adopts the North American Industry Classification System (“NAICS”) for classifying employers. The 34 NAICS classes/subclasses will replace the 155 rate classification groups that the WSIB currently uses to set premium rates. The NAICS is already used by the United States, Mexico, Statistics Canada, and the Canada Revenue Agency. Under the NAICS, employers are assigned one or more NAICS Codes, each of which falls under one of 34 classes/subclasses, based on the types of business activities that they engage in. Notably, changes to an employer’s business activities may result in the NAICS Code(s) that are assigned to them being changed.
Schedules 1 and 2 of the WSIA set out which employers are eligible for collective liability coverage under the Act. Currently, employers that only carry on business activities that fall under Schedule 2 are exempt from collective liability coverage under the Act, and any employer carrying on a business activity listed in Schedule 1 must have coverage, subject to certain exceptions.
However, under the new Rate Framework, coverage will only be mandatory for employers that engage in business activities that fall under the new Schedule 1, Part I of the Act, whereas employers with business activities falling under Schedule 1, Part II may choose to opt-in for coverage. Employers with business activities falling under Schedule 2 of the WSIA will not be subject to significant changes under the Rate Framework.
Overview of the Rate Framework
One of the biggest changes instituted by the Rate Framework is that it employs a prospective rate-setting approach, rather than a retrospective rate-setting approach. Basically, this means that employers’ individual claims experiences will continually change the premiums they are asked to pay going forward. In contrast, under the current Experience Rating Programs employers receive surcharges and rebates after the fact, based on their claims experience during the year.
The Rate Framework employs a two-step approach for setting and adjusting employers’ premium rates. First, a “Class Average Premium Rate” for each class/subclass is set based on the risk profile and claims history of the industry (or industries) falling under that class/subclass. Second, the Class Average Premium Rate is adjusted based on how each employer’s claims history compares to that of others in their class/subclass, to determine premium rates for individual employers.
In general, the Rate Framework will uniformly consider employer’s claims history over the previous 6 years, whereas the existing Experience Rating Programs (which are being eliminated) each considered claims history over different time periods.
For employers currently participating in an Experience Rating Program, the timetable for final statements, rebates/surcharges, and adjustments is as follows:
|Experience rating program||Final statement issued||Final rebate||Final Surcharge|
|MAP||December 2018||2019 premium year||2019 premium year|
|NEER||November 2020||January 2021||December 31, 2020|
|CAD-7||September 2020||November 2020||October 31, 2020|
One or More Premium Rates
Employers that carry on a single type of business activity will be assigned a single NAICS Code (and rate), whereas employers that carry on more than one type of business activity will be assigned a NAICS Code corresponding to each of those business activities.
Employers with multiple NAICS Codes may be subject to one or more premium rates, depending on the class/subclass that their NAICS Codes correspond with, as well as the way in which their operations and payroll are structured.
Employers may receive multiple rates if their business activities meet certain criteria. Employers will only achieve multi-rating if the following criteria are met:
- payroll is segregated in respect of the employer’s different business activities;
- the different business activities do not constitute an “integrated operation” (e.g. if manufacturing and selling a product, then the manufacturing and sales activities would be integrated and the employer will not be eligible for multiple rates); and
- each business activity is “significant” (i.e. it accounts for at least 20% of the employer’s insurable earnings or generates annual insurable earnings of at least five times the maximum insurable earnings ceiling for the premium year).
These new requirements will severely restrict employers’ ability to qualify for multiple rates, and will therefore substantially increase premiums for many employers.
Notably, temporary employment agencies will be subject to special rules and will generally receive multiple rates.
Employers that wish to have multiple premium rates, which can result in massive cost savings, should immediately devise a strategy to obtain WSIB approval to do so in order to maximize potential savings. Employer may wish to seek advice before doing so to maximize the likelihood that the WSIB will agree that they meet the criteria for multiple rates.
How Individual Premium Rates will be Determined—Risk Bands
As discussed above, a two-step process will be used to determine individual employers’ premium rates. The Class Average Premium Rate for the class/subclass(es) corresponding to an employer’s NAICS Code(s) is adjusted up or down based on how that employer’s claims history and insurable earnings compare to other employers in that class/subclass. In effect, each class/subclass will have a series of “risk bands” that represent increments of risk in relation to the class risk profile. Each risk band adjusts the premium rate upwards or downwards by about 5% (i.e. an employer assigned to the risk band one step above the Class Average will pay a premium rate that is about 5% above the Class Average Premium Rate).
In general, employers will only be able to move up or down a maximum of three risk bands each year. In other words, an employer’s premium rate can only increase or decrease by about 15% from year to year. Additionally, the maximum number of risk bands that an employer can be above the Class Average Premium Rate, overall, will be limited depending on how well their claims history predicts their future claims. This limit ranges from six to 23 risk bands, such that employer’s maximum premium rates will be capped at anywhere between 30% and 155% above their Class Average Premium Rate. Generally, the claims experience of smaller businesses is less predictable than larger businesses, such that premium rates for larger businesses can diverge from the class rate by more than less predictable/smaller employers.
Transitioning to the Rate Framework
To help employers transition to the new Rate Framework, special transitional rules will apply for the first three years. Each employer will be assigned an initial premium rate based on their Classification Unit under the old/existing system, their previous six years of claims experience, and any experience rating adjustments that they received in the last three years under the currently applicable Experience Rating Program. Each employer will also be assigned a Projected Premium Rate, which indicates how their premiums are expected to increase or decrease by 2023 under the Rate Framework if their claims experience continues to be consistent with their claims history. During the transition period, changes in premium rates will be limited as follows:
- For the first year of the Rate Framework being in effect (i.e. 2020) employers’ premium rates will only be able to increase by a maximum of one risk band (about 5%) from their initial rate (but any projected decreases in rates will be applied immediately).
- For the second transition year (i.e. 2021) employers’ premium rates will only be able to increase by a maximum of two risk bands from their 2021 rate, or about 10%.
- For the third transition year (i.e. 2022) employers’ premium rates will be able to increase by a maximum of three risk bands, or about 15%.
Transitioning to the Rate Framework for Non-Profit Organizations
Different transitional rules will apply to non-profit organizations, under which they will have a 10-year transition period. During the first five years of the transition period, non-profit employers’ premium rates will not increase beyond the rate they are assigned in 2020, but their rates can decrease during this time, without limit, to their projected premium rate. Subsequently, from 2025-2027, non-profit employers’ premium rates may increase by a maximum of one risk band per year and may decrease by a maximum of three risk bands per year. Finally, from 2028-2029, non-profit employers’ premium rates may increase a maximum of two risk bands per year and may decrease a maximum of three risk bands per year.
The sweeping changes instituted by the new Rate Framework are almost here; employers that are not familiar with the new Rate Framework should get up to speed before the changes come into effect. Employers that have not yet been notified of their NAICS Code(s) or premium rate information should contact the WSIB as soon as possible. Employers that have been notified should review their code and rate information and inform the WSIB if they believe that any of their classifications or rates are inaccurate. Employers that believe they should have multiple rates should assess whether they meet the criteria, get advice about organizing operations to meet the criteria and/or how to maximize the chances that the WSIB will accept that they meet the criteria, then get in touch with the WSIB as soon as possible. Employers that believe that the WSIB has made a mistake in setting their premium rate may request a premium rate adjustment by contacting the WSIB and clearly identifying the premium issue requiring adjustment and why they believe there is a mistake.
This blog is provided as an information service and summary of workplace legal issues.
This information is not intended as legal advice.