Ontario Business Coalition

Transcription

1 Ontario Business Coalition Submission To The Workplace Safety & Insurance Board s Rate Framework Consultation April 2013 Ontario Business Coalition Secretariat 6725 Airport Rd., Ste. 200 Mississauga, Ontario L4V 1V2 maria.marchese@cme-mec.ca

2 WORKPLACE SAFETY & INSURNACE BOARD S RATE FRAMEWORK CONSULTATION April 2013 Introduction The Ontario Business Coalition (OBC) is pleased to submit the following comments to the Workplace Safety & Insurance Board s Funding Framework Consultation, chaired by Douglas Stanley. OBC represents one of the province s largest groups of employer associations and individual companies. It includes employer associations from manufacturing, construction, petroleum products, retail, Schedule 2, hospitals, long term care facilities and temporary help. OBC members are committed to the objectives of promoting an equitable and sustainable workplace safety and insurance system. OBC is committed to proactively influencing the Workplace Safety and Insurance Board (WSIB) and government on the design, direction and administration of the workplace safety and insurance system. OBC s membership is comprised mainly of employer associations. General Comments on the Project In general our members are supportive of undertaking this project since it certainly is necessary to implement some changes to the premium rate making function and experience rating programs. We are very respectful of the selection of Douglas Stanley to lead this project. He brings excellent experience, knowledge and understanding of the challenges involved in addressing these subjects 1

3 We have some caveats and uncertainty about the real need to address the rate group classification issue and the problems that apparently exist today. However, we are agreeable to examine the matter and to participate in testing a new structure. The input from OBC will focus on fundamentals and the building blocks for a new rate framework structure. There are three elements to the framework. We believe it is important to reach consensus on the basic fundamentals and then build on this to develop the additional features. Thus we believe a second stage of input from employers should be obtained once the basic blocks have been established and agreed. At this time we will not attempt to express a position on smaller details in each of the three elements. Details on subjects such as: How to combine rate groups and an acceptable range of rates within each How to reflect accountability at class and rate group level for certain types of gains and losses How to express actual and expected claims and credibility strength for experience rating should be addressed at the next stage of the project. Finally, the ultimate proof of success of the project will be seen by an employer to be the rationale and the reasonableness of any change from his current premium rate to a new rate and the manner of getting from one to the other. Employer Classification and Rate Group Structure The current Standard Industrial Classification (SIC) employer classification system is admittedly outdated. The North American Industry Classification System (NAICS) is known by some employers but not all. 2

4 Since the system is based on economic activity there is a presumption that grouping employers by this system is a good proxy for similarity of expected claims costs. This is paramount if the objective is to set a common premium rate for all members of a group. At this point it is unclear how similar the groups would be, both at the classification unit level and at the rate group level, under the NAICS system versus the existing system. There appears to be two stages to this element of the project. First, the use of NAICS produces new classification units. At what level of detail should the Classification Units (CU) be structured? Apparently, at the highest level there would be only about 20 CUs for the whole work force. Clearly at this level there would be a wide range of expected claims costs within a CU. It is impractical to think this can be refined solely by experience rating to produce an equitable result at the employer level. Accordingly, decisions need to be made about acceptable cost ranges within a CU and thus how many CUs should be created. We understand that the NAICS system would assign an employer to a single CU, whereas currently an employer can be in several CUs and rate groups. This issue needs to be addressed carefully since it seems possible that two large employers who appear to be dominantly in the same industry could in fact have significantly different expected costs overall depending on which subordinate industries are involved. At this point the assumption is that a CU has its own unique premium rate and thus a record of emerging costs will be maintained for its members. There has been a desire expressed by the WSIB to reduce the number of rate groups overall for administrative convenience, and to reduce rate group shopping. Our members are not convinced this is a big problem. We are aware that British Columbia has an approach to combining rate groups of different industries which have similar costs to give more stability to rates. We need to be careful that the concept of combining rate groups is done for the right reasons and not just for convenience. 3

5 Premium Rate Setting Our members believe that the existing fundamental structure of premium rates should be maintained. The basic structure is consistent throughout Canada. Essentially the structure should continue to have three components: Cost of New Injuries (CNI) This component is the capitalized cost of new injuries expected to be incurred in the upcoming year. It should be set using best estimate, going concern assumptions. It should not be surcharged or subsidized. The expectation should be no gain or loss on new injuries. It should include a provision for claim administration expenses. Other Administration and Overhead Expense This component covers all non-claim administration expenses and legislative obligations that will be required to be paid in the upcoming year. This is not a capitalized value but a cash cost in the upcoming year. A fair method of allocating between rate groups is required some portion can be simply assigned prorata on covered workforce while some expenses may need to be assigned pro-rata at the class level. Amortization of Unfunded Liability (UL) and Other Gains and Losses This component is the annual payment to help liquidate the accumulated deficit and is established by the funding policy. However details of accountability and apportionment need to be discussed further. The OBC members support the continuation of some level of class financial accountability. We recognize that the current system of classes needs some revision. Certain industries have diminished so much that 4

6 their class is not self sustainable. It may be that some classes are too large, represent too diverse a group of industries and would still be self sustaining even if split in two. We recognize that some part of the UL is shared pro-rata at the Schedule 1 level while other gains and losses are shared at the class level. Further some costs that are relieved at the individual employer level are in fact shared by all employers within the given rate group. We do want a high degree of accountability maintained at the rate group and class level and as a result, cross-subsidization should be minimized to a very low degree and only when absolutely necessary (i.e. if there is a catastrophic incident that would unduly burden a class). We are aware that the WSIB favours combining rate groups and assigning a single average premium rate to all employers in the larger rate group. Since we favour class level accountability we believe combining of rate groups could only be done within the same class. The rationale for combining rate groups clearly requires further discussion. It is one thing to combine rate groups having similar rates. It is quite different to combine rate groups having a wide dispersion of rates and to satisfy a different objective. The use of Experience Rating to correct for the inequity of combining rate groups with a wide dispersion of true rates will not be fair to the individual employers in these rate groups. For instance, consider six rate groups combined together to give an overall average rate of $2.00. If the individual rate groups would normally have rates ranging from$1.50 to $2.50 this means one group is overpaying by 33% and another is underpaying by20%. Experience Rating at the individual employer level cannot correct for this large inequity at the extremes. At best for an average medium size employer entitled to the $1.50 rate the correction would be about 1/5 of the overcharging. Conversely, if the range of rates for rate groups combined is from, say, $1.85 to $2.15 to give the $2.00 average the situation is much improved. Essentially, reasonable employer equity cannot be sacrificed simply to ease the administrative burden on the WSIB. 5

7 The OBC is aware that the existing real premium rates for all rate groups have become obscured by the politically palatable policy of simply increasing everyone s previous year rate by 2% or 1.5% as the case may be. Continuing to ignore the actual movement in a rate group s true costs of new injuries needs to stop. Some rate groups are systemically generating losses others are systemically generating gains. It is impossible to apply experience rating with integrity in this environment. A major problem with this irrational approach to setting rates is that over time employers come to believe the phony rate is a valid expression of their costs, so that any attempt to correct the situation becomes increasingly difficult. Experience Rating It is an absolute necessity that Experience Rating be maintained. The program must be cost based not activity driven. The purpose is to enhance pricing equity whether or not it has any measurable impact on accident prevention or return to work. If the legislation needs to be changed then it should be changed. Our members support a move to Prospective Experience Rating - meaning that the rate group average premium rate is to be adjusted up or down for an employer, in the upcoming year, based on the relation of his past claims cost experience to the claim cost experience of the rate group. The existing retrospective refund/surcharge formulas should be replaced. We believe there should be one cost based experience rating program with the possible exception of a modification or participation threshold for very small employers. It is not necessary to have different programs for different industry sectors or classes. 6

8 Experience Rating should be revenue neutral. In a prospective system effort should be made to remove any expected off balance of discounts and surcharges on rates for the upcoming year so that any actual imbalance will be as small as possible. The current fatal claim policy and its impact on Experience Rating must be removed in its entirety. It was a politically motivated policy that had no insurance rationale whatever. The expression of actual and expected claims costs, the types of claims costs to be included or excluded, the period of experience to be used, and level of credibility attached to an employer s experience, all can be discussed and input provided at the next stage of the project. The strength of the Experience Rating formula which essentially is expressed through the credibility attached to an employer s own experience is very strongly correlated to the concept of creating larger rate groups with a potentially wider range of employer costs. This is a very delicate and critically important feature. As mentioned earlier it is not possible to correct extremely inequitable pricing by experience rating alone. Summary The OBC looks forward to a continued involvement in the WSIB Rate Framework Consultation and appreciates the opportunity to meet and further discuss our views with Mr. Stanley. We are hopeful that our focus on getting the fundamentals and building blocks established first will assist in gaining consensus across the employer community. All of which is respectfully submitted. April