An independent funding review of the Workplace Safety and Insurance Board (WSIB) makes a series of recommendations on the board’s unfunded liability, as well as employer incentives, the existing rate group structure, and other compensation-related concerns. The recommendations draw on extensive public consultations and, if accepted, could dramatically change the way premiums are calculated.
Shortly after release of the review’s report, Labour Minister Linda Jeffrey issued a statement indicating the ministry will act on the board’s unfunded liability — the gap between future compensation benefits and funding received from employers. This was one of the report’s recommendations.
The board’s unfunded liability ranges from $12.4 billion to $14.5 billion, depending on the source. Jeffrey has committed to eliminating it by 2027.
Interest groups are concerned that this will happen primarily through higher compensation premiums. However, the report takes a broader view, observing that addressing the unfunded liability “is likely to affect almost every aspect of the WSIB’s policies and practices, from premium levels and investment strategies to benefit levels and claims administration.”
Led by Harry Arthurs, an authority on labour and employment law, ethics, and other related areas,1 the review links two ideas that he says are not always seen as compatible: ensuring fairness to injured workers, and basing the funding on sound principles and careful administration. Fairness to workers and employers is a consistent thread throughout the report. Hence, its title: “Funding Fairness.”
New funding strategy recommended
To address the unfunded liability, the report recommends adopting a funding strategy that
is based on realistic assumptions
puts the WSIB on course to achieve 90% to 110% funding within 20 years
calculates premiums based on 1) a variable basic charge that takes into account new claims costs that are properly priced and fully funded on an annual basis, and 2) a fixed “unfunded liability component”
will signal the need to re-price the unfunded liability component “in timely fashion”
includes a provision for funding full indexation of payments to partially disabled workers
The unfunded liability is one of six issues on which the report makes recommendations. The others include:
• premium rate setting, which Arthurs describes as the Achilles heel of any funding strategy. Among the recommendations: enhance the board’s actuarial capacity, which it had already begun to do • commit to setting rates in accordance with its funding policy and based on the best available technical analysis • enhance the independence and authority of the chief actuary, signaling a commitment to a more professional approach to rate setting.
“I am optimistic that the employer community will support such an approach,” writes Arthurs. “After all, most briefs I received from employer groups stressed that the WSIB must operate on sound business principles. As far as I am aware, such principles do not include wishful thinking about discount rates, persistent mispricing of new claims costs or fixing premium rates with a view to placating stakeholders rather than generating the necessary revenues.“
• employer incentives. “Of all the issues addressed in briefs and at the hearings,” observes Arthurs, “none was more contentious than the system of incentives provided to employers under the experience rating system.” The intent is to encourage employers to reduce injuries and illnesses, and encourage workers to return to work. However, the current set-up is flawed. For instance, performance based incentives may encourage under-reporting of injuries. Furthermore, there is little conclusive evidence to show that experience rating achieves its goals.
Arthurs recommends that the board continue to maintain experience rating programs only if it meets three conditions:
it declares the purpose of these programs to be solely to encourage employers to reduce injuries and occupational diseases and to encourage workers’ return to work, and it concludes that the programs are accomplishing their purpose
it adopts a firm policy to protect program integrity and commits the necessary resources to detect, prevent and punish employer abuses
it establishes a credible monitoring process to ensure that the first two conditions are met
Arthurs also recommended
placing greater emphasis on practice-based incentive programs and coordinating these programs more closely with other regulatory and educational initiatives
make participation in practice-based programs a condition of eligibility for participation in experience-based programs
consolidate and/or coordinate existing practice-based programs (SCIP, Safety Groups, Workwell and Accreditation)
establish incentive programs that are fair and practical for small businesses
• rate group structure. At present, employers paying compensation premiums are charged a rate that reflects the risk profile and cost experience of the 9 “industry classes” and/or 154 rate groups with which they are identified. Individual employers with worse than average injury records may be charged a higher rate.
Arthurs recommends replacing the existing classification system with a new system of “sectoral groups” that would be defined by the board and the province’s chief prevention officer. These sectoral groups would be used to set premium rates and to organize injury prevention, safety education and return-to-work/labour market re-entry programs. Arthurs suggests that the sectoral groups comprise combinations of existing rate groups and build on existing Safety Groups, employer associations and other organizations with which firms already work.
To avoid marginalizing small firms, or having their rates determined by costs attributable to dominant firms, Arthurs suggests creating a separate small business sector or establishing a standard rate for small businesses within each sector.
• occupational diseases. The key issue is whether the board has sufficiently provided for the future cost of occupational disease claims. Not so much for occupational diseases it currently recognizes, but for new workplace-related diseases not yet identified by medical science. To this end, Arthurs recommends the board
re-establish a medical/scientific panel to identify occupational diseases that should be eligible for compensation, the conditions and/or presumptions which should govern eligibility for compensation, and provide advice so that the board can forecast likely future costs
monitor long-term trends in occupational disease costs and the emergence of “new” occupational diseases, and make provisions for future benefit costs
continue covering the cost of occupational diseases, rather than shift them to the general welfare system or the Ontario Health Insurance Plan
Arthurs also recommends against
establishing a segregated fund to cover the future cost of occupational diseases. Worker groups see such a fund as setting a benefits ceiling, whereas employer groups see it as setting a floor
• indexation of benefits for partially disabled workers. Before 1987, explains Arthurs, benefits paid to disabled workers were adjusted ad hoc to compensate them fully, partially or not at all for cost of living increases. In that year, benefits became 100% indexed to the cost of living. This continued until 1995 when the government, in the midst of a financial crisis, curtailed indexation of benefits received by partially disabled workers. Indexation was further curtailed in 1998.
To compensate disabled workers for these reductions, the government began introducing supplements and ad hoc inflation adjustments. “This approach is not optimal,” notes Arthurs. “It leaves disabled workers at the mercy of too many economic and political contingencies; it forces the WSIB to readjust its financial predictions, often after the fact; it imposes costs on employers that they could neither predict nor budget for; and it puts the government in the invidious position of choosing each year between praise from workers and protest from employers, or vice versa.”
Arthurs recommends 100% indexing of the benefits of fully and partially disabled workers on the same basis, and adjusting the benefit base of partially disabled workers already receiving benefits.
Funding Fairness is based on a series of consultations with stakeholders and interested parties. For example, in fall 2010 Arthurs met informally with 39 umbrella organizations representing employer groups, injured workers’ advocates and unions to explain how he planned to proceed and to learn of their views on the issues. Afterward, he circulated a Green Paper that explained his mandate, indicated how the review would proceed, and posed questions for stakeholders and others to address in any submissions.
In winter 2011, the review convened a technical consultation attended by actuaries and other experts representing stakeholders, as well as four non-aligned experts. In spring 2011, the review conducted 12 days of public hearings in six Ontario cities.
In total, 75 representative organizations and 55 individuals and businesses submitted written briefs, made oral presentations or both. An additional 14 submitted comments online or by letter, or provided their views orally.
In the course of his review, Arthurs also drew on the expertise of an advisory panel comprising “four distinguished Ontarians,” listed below along with examples of their accomplishments:
Maureen Farrow, president of Economap Inc., a firm specializing in interpreting the impact of global economic trends on financial markets. Also a member of the Investment Committees of WorkSafeBC and the WSIB. Farrow is a former public governor of the Toronto Stock Exchange (1993–94), and former director of the Canadian Chamber of Commerce
Buzz Hargrove, former national president of the Canadian Auto Workers (CAW) trade union, and currently external executive director of the Centre for Labour Management Relations at Ryerson University’s Ted Rogers School of Management
John O’Grady, a consulting economist specializing in the analysis of labour markets, a founding partner of Prism Economics and Analysis, and chair of the Institute for Work & Health
John Tory, a lawyer, corporate director, broadcaster and community activist, a former member of the Provincial Parliament in Ontario, and former leader of the Official Opposition
Find out more
1. Read the full report
2. Learn about Workplace Safety & Prevention Services (WSPS)’s Safety Group. Member firms participating in this performance-based incentive program have dramatically reduced injury frequency and severity rates, and received significant compensation premium rebates.
3. Explore WSPS resources for specific opportunities to improve your firm’s performance.
4. Speak with a WSPS consultant on ways to improve health and safety performance by integrating it into your operations. For instance:
developing or enhancing a health and safety program
assessing training needs and delivering on-site training
increasing joint health and safety committee effectiveness
helping firms implement Workwell audit requirements