Are you ready for WSIB’s New Rate Framework?
The Workplace Safety & Insurance Board (WSIB) has finalized and released the changes to the premium rate setting system used in Ontario. Currently, the WSIB uses either NEER, CAD-7 or MAP experience rating programs in order to calculate the total dollar amount in premiums to be paid by Ontario employers, including surcharges and rebates.
The new system is called the “New Rate Framework” and will completely replace NEER, CAD-7 and MAP. The WSIB is shifting to this new system in order to make the calculation of employer premiums more transparent and easier to understand. The New Rate Framework will be introduced on January 1, 2020 with a transition plan in place to phase out NEER, CAD-7, and MAP by the end of the same calendar year.
The WSIB is simplifying how businesses will be classified by adopting the North American Industry Classification System, or NAICS. NAICS is already used by Statistics Canada, the Canada Revenue Agency and is a North American standard. It will help simplify and streamline the classifications, making it easier to understand why businesses are classified the way they are. Under the NAICS, employers will be classified into 34 classes/sub classes instead of the previous 155 different Rate Groups.
In the New Rate Framework, employers will be assigned to a Class that is representative of their business’ predominant activity (this mostly applies to businesses with multiple Rate Groups under the NEER & CAD-7 systems).
Premium Rate Stability
The New Rate Framework takes a prospective rate setting approach. This means that in addition to annual rates, employers will be provided projected premium rates in advance, which can serve as an early indicator as to the direction of their premium rates. This will help keep employers informed and prepared for any changes to their rates in the future. As well, any premium changes as a result of the new system will be phased in over time, allowing employers to adjust.
Two Step Model
The New Rate Framework will use a two-step approach to set and adjust premium rates for businesses.
The first step involves setting an average rate for each industry class based on their risk profile and share of responsibility to maintain the insurance fund.
The second step looks at how an employer’s individual claim history compares to the rest of the businesses in their class. This means that the overall rate under the new model will reflect individual claims experience and risk.
This two-step approach will ensure businesses are paying a fair rate that is reflective of their industry and experience. When setting premium rates, the WSIB will be using insurable earnings, claims costs and the number of allowed claims over a six-year period. For new businesses with less than one year of experience, the premium rate will be the class average rate.
Annual Premiums & The Premium Rate
Each class will first be assigned a Base Premium Rate. An employer’s individual experience over six years will then determine whether they receive a discount or surcharge on the Base Premium Rate. This new calculated amount will be their Premium Rate. The employer’s Annual Premium is then calculated by multiplying the Premium Rate by every $100 of payroll.
In 2020 when the New Rate Framework is introduced, WSIB will consider the accident years from 2013-2018 to create an employer’s Personalized Premium Rate. 2016, 2017 & 2018’s accident experience is worth 2/3 of the 2020 Personalized Premium Rate, while 2013, 2014 & 2015’s accident experience is worth 1/3 towards the 2020 Personalized Premium Rate.
Under the new system, classes are further divided into a number of Risk Bands. A business will be assigned to a Risk Band that best represents their risk in relation to other businesses in their class. Businesses that fall under the same Risk Band will all be assigned the same Premium Rate that reflects their individual risk profile. The Risk Bands are a specific percentage, higher or lower than the Class Rate Average.
For example, let’s apply this to two medium-sized businesses, Terry’s Transport and Wanda’s Warehouse. Both of the businesses are in the same Class; however, Terry’s Transport has had more claims over the past six years than Wanda’s Warehouse. After considering their predictability, claims and insurable earnings history, Terry’s Transport receives a risk profile of 110% and Wanda’s Warehouse’s is 90%. (The Class Rate is considered to be 100%)
If the class rate is $0.47 and Wanda’s Warehouse is placed in the 90% Risk Band, their rate would be $0.42. Terry’s Transport is placed in the 110% Risk Band, resulting in a rate of $0.52.
Wanda’s Warehouse Rate = 90% of $0.47 = $0.42
Terry’s Transport Rate = 110% of $0.47 = $0.52
The following is how/when the WSIB is going to Phase-In the New Rate Framework’s classification and risk banding system:
- 2019: The 2020 Premium Rates will be released in September
- 2020: The Premium Rate will be based on previous rates, claims experience, business
size and NAICS classification
- 2021: The Premium Rate will be calculated using only the new system; however, an
employer can only move up ONE Risk Band but can move down up to THREE in a
- 2022: The Premium Rate will be calculated using only the new system; however, an
employer can only move up TWO Risk Bands but can move down up to THREE in a
- 2023: New Rate Framework in full effect, an employer can now move up or down
THREE Risk Bands in a single year
Q. Does SIEF still exist and if so, are there any changes to the policy?
A. The SIEF policy remains unchanged and will continue to operate within the New Rate
Q. Will there be any changes to the Claim Appeal process?
A. No, the Claim appeal process will remain the same.
Q. Will there be anymore Rebates/Surcharges after January 1st 2020?
A. Yes, in September 2020 the WSIB will release the FINAL NEER statement with a
Rebate/Surcharge and in August 2020 they will release the FINAL CAD-7 statement with
Q. What is a Predominant Business Activity?
A. The Predominant Business Activity is the section or department of your business
with the most payroll/insurable earnings.
Q. How much does moving up ONE Risk Band equal?
A. Each Risk Band = 5%, this also means that the maximum amount your Premium Rate can increase from one year to the next is 15% as you can only move up a maximum of THREE Risk Bands per year.
Q. How is my Annual Premium (the amount paid to WSIB) calculated?
A. The Annual Premium is calculated by multiplying the Premium Rate by every $100 of your company’s payroll. For example, if your business has a payroll of $2,000,000 and a Premium Rate of $3.00, your Annual Premium would be $60,000.
Annual Premium = (2,000,000/100) x $3.00 = (20,000) x $3.00 = $60,000