What is the rate framework?
We are introducing a new way we set premium rates for the 300,000 Ontario businesses covered by our workplace injury and illness insurance.
Our new model comes into effect January 1, 2020, changing the way businesses are classified, boosting fairness and increasing transparency in how premium rates are set and adjusted.
We are simplifying how your business 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. The NAICS structure is used by Statistics Canada and the Canada Revenue Agency to classify employers all across Canada. It will help us simplify and streamline our classifications, to make it easier to understand why your business and other businesses are classified the way they are.
In the rate framework, employers will be assigned to a Predominant Class. This is generally based on the Class that represents the employer’s largest percentage of insurable earnings.
Fair premium rates
The rate framework provides an approach that ensures a fair premium for workplace coverage, and is based on each employer’s individual risk and claims experience.
Premium rate stability
The rate framework takes a prospective rate setting approach. This means that in addition to your annual rates you will be given projected premium rates in advance, which will act as an early indicator of the direction of your premium rates. This will help keep you informed and prepared for any changes to your rates in the future. As well, any rate changes as a result of the new model will be phased over time, to allow you to adjust.
Easy to understand
With a standardized classification system, the rate framework will be very clear, simple and easy to understand, and promotes active and informed participation by all parties.
We will continue our risk sharing arrangement among all employers who collectively pay premiums to maintain the insurance fund. The rate framework is revenue neutral – the overall total amount of premium dollars collected by the WSIB will not change.
Ease of administration
Since the rate framework is very clear in its classification and rate setting approach, this will mean a more efficient and effective system for employers and for the WSIB to administer and maintain.
Our new model uses a two-step approach to setting rates:
The 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 your individual claim history compares to the rest of the businesses in your class. This means that your overall rate under the new model will reflect your 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, we 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, your premium rate will be the class average rate.
In our new model, each NAICS class has a series of risk bands and each risk band has an associated rate, either above or below the class rate (risk band 60 rate).
The risk band 60 rate represents the premium rate a business would pay based on the risk of their class alone, not factoring in any adjustments made based on your business’ individual claims experience and risk. It generates the premium required by each class to help fund the overall system and ensure each class is self-sufficient. When we set the risk band 60 rate, we consider the collective experience of the all the participants of the class. If the risk band 60 rate for a class changes as a result of the overall claims experience of that class, it will impact the other risk band rates within that class.
Your business will be assigned to a risk band that best represents your risk in relation to other businesses in your class. The risk band rate includes rate adjustments based on your individual experience. The difference between successive risk band rates is approximately 5 per cent.
Businesses that fall under the same risk band rate have similar risk profiles and will pay the same rate.
Your predictability is a measure of how much we can rely on your past claims experience and insurable earnings to predict future outcomes. Your rate is calculated using the class rate and the individual risk associated to your business, which is influenced by your claims experience and insurable earnings over a six-year period.
A low predictability means a business’ insurable earnings and the number of allowed claims are quite low. In this case, your claims experience would not have a significant impact on your rate. Instead, the rates of your class will have more influence on your premium rate to protect against volatility and the dramatic effect one claim could have on your rate.
Businesses with a higher number of allowed claims and larger insurable earnings, have a higher predictability. In this case, volatility is not as high, as each single claim likely will not have a significant impact on your rate.
The below illustrates the correlation between a business’s predictability, insurable earnings, and number of allowed claims
|Predictability Scale||Number of Businesses||Minimum insurable earnings (6-yr) ($)||Maximum insurable earnings (6-yr) ($)||Average insurable earnings (6-yr) ($)||Average annual insurable earnings||Minimum number of claims (6-yr)||Maximum number of claims (6-yr)||Average number of claims (6-yr)|
- Data is for the 2019 model year as of May 31 2018 (2012-2017 is six year window considered)
- Maximum insurable earnings in 2019 model year is $92,600
- If you have no allowed claims, the maximum your predictability can be is 80%