WPL Inc. assists companies in developing health and safety programs designed to comply with health and safety regulations that exist in Ontario. Given the amount of time and resources that are spent on these programs, many senior managers never look at the reports that they are sent every quarter by the Workplace Safety and Insurance Board (WSIB). Typically, these reports are sent off to payroll without ever having been seen by the senior management.
The WSIB is funded through premiums charged on the insurable payrolls of employers; the WSIB receives no funding from the government. From the premiums paid by employers, the WSIB provides benefits to employers and workers. For employers, the system provides no-fault, collective liability insurance, while workers receive medical care and wage loss replacement, along with help returning to the workforce.
Unfortunately, assets in the WSIB insurance fund are substantially less than what is needed to satisfy the estimated lifetime costs of all claims currently in the system. This funding gap is known as an “unfunded liability.” The provincial auditor’s most recent estimate of the unfunded liability is $11.5 billion, which is an increase of $3.4 billion from December 31, 2007.
Recently, the WSIB began sending out notices to Ontario companies letting them know about how much of an increase they can expect to pay in 2011. Companies are seeing increases of 2 to 15 per cent, and in some cases even more.
The following story is true, and is provided to emphasize the lack of awareness that most senior managers have with respect to WSIB quarterly reports. The names of the individual and the company have been changed; however, the essential facts are accurate.
There are three types of insurance rating programs under the WSIB: the Merit Adjusted Premium Program (MAP), the CAD-7 program and the NEER program. I will focus on the NEER program and the NEER quarterly reports, since these apply to the most industries in the province.
WSIB slots every company into a rate group, and a premium rate is established annually. Each quarter, the WSIB sends employers a review of all of their claims going back over three years of accident history, summarizing the information primarily in two forms: the claim cost statement and the firm summary statement.
The WSIB has a window of three years to assign a lifetime of costs to any particular claim. (Note: At the time of writing, WSIB proposed to increase this window to four years.)
The Firm Summary Statement is comprised of two tables:
Table one shows four accident years and the associated accident year’s annual premiums paid, as well as things called “cost factors,” “expected costs,” “NEER costs,” “rating factors” and “performance indexes.”
NEER costs are the costs for accidents that have occurred in your company in a particular accident year — so NEER costs mean YOUR COMPANY’S COSTS. Expected costs are the costs that WSIB has estimated your company would incur in a particular accident year. The performance index is simply the NEER costs divided by the expected costs. A performance index of less than 1.0 means that your company is performing better than other companies in the same rate group, and you can expect a refund. A performance index of exactly 1.0 means that your company is performing at the average of other companies in your rate group, and you should not expect a refund or a surcharge. A performance index above 1.0 means that your company is performing worse than others in the rate group, and you should expect a surcharge.
Table two is labelled “Refund/Surcharge Calculation.” This table shows three accident years, and indicates whether there is a surcharge or a refund for each year. The surcharges and refunds are added together, and a total surcharge or total refund is calculated.
The most important thing for business owners to look at every quarter is the performance index. Not only is it a quick indicator as to whether a refund or surcharge can be expected, it shows how your company compares to other companies in the same rate group, and it is also used by the WSIB as an indicator for poorly performing companies. A high performance index is one of the triggers for the dreaded Workwell Audit, which is an audit imposed on companies that have consistently poor safety records. Employers can be assessed additional premium increases if they fail a Workwell Audit — and 75 per cent of companies fail their first audit.
If you see a performance index of 1.0 or more, this should prompt you to start doing some claim investigating, and the first place to start the investigation is with the Claim Cost Statement.
The Claim Cost Statement
The Claim Cost Statement looks a little busier than the Firm Summary Statement, but is decipherable once you know the jargon. Individual claims are grouped into three accident years, and there is a column for each claim associated with a claim number, individual worker’s names, accident dates, claim types, ages of claim, past awards, discounted past awards, projected future costs, overhead costs and limited claim costs.
The three most important columns to look at are:
2. Projected Future Costs – This column is the amount of money that the WSIB has charged you for the expected lifetime of the claim.
3. Overhead – This is WSIB’s overhead; the overhead to pay for those 4,000 employees.
By adding the costs of Discounted Past Awards, Projected Future Costs and Overhead together, you get the total lifetime cost of the claim. Now this lifetime cost estimate changes as more information is acquired, and the WSIB has three accident years to refine it (soon-to-be four years). Not surprisingly, the cost refinements rarely show a decrease over the three-year window.
Most owners are shocked to realize that Projected Future Costs and Overhead are often much higher amounts than the actual incurred cost of the injury (the Discounted Past Awards).
Projected Future Costs are typically triggered if a claim results in lost time of five days or more. Projected Future Costs are not calculated for claims with Health Care Only Benefits. Of course, as the Projected Future Costs increase, so do the Overhead Costs. For this reason, every company must have an aggressive Return-To-Work program. Keeping lost-time claims below five days can dramatically reduce your costs.
Limits on claims
A limit is placed on the maximum cost, which can be used by NEER for any one claim. Beginning with the 2006 accident year, the per-claim-limit is equal to five times the maximum insurable earnings. For 2010, the maximum claim limit was $388,000. A further limit is placed on the firm’s total claims costs for a given accident year. The firm cost limit is equal to four times the expected claims costs.
Reading and understanding WSIB quarterly statements is essential for all business owners and managers. Make it a point to review those WSIB quarterly statements and make sure that the information is accurate. As an absolute minimum, make sure you look at the performance index; it’s a small number, but paying attention to it can bring in big savings.