We have changed the way we set premium rates for the 300,000 Ontario businesses covered by our workplace injury and illness insurance.
Our new model came into effect January 1, 2020, changing the way businesses are classified, boosting fairness and increasing transparency in how premium rates are set and adjusted.
What to expect in 2020?
Our new model will use a two-step approach to set and adjust premium rates for businesses.
- Step one involves setting an average rate for each industry class based on their risk profile and share of responsibility to maintain the insurance fund.
- Step two 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.
We will be using insurable earnings, claims costs and the number of allowed claims, over a six-year period to set premium rates. For new businesses with less than one year of experience, your premium rate will be the class rate.
This approach will ensure businesses are paying a fair rate that is reflective of their industry and experience.
We are moving from our current classification structure to the North American Industry Classification System (NAICS). It will help us simplify and streamline our classifications from 155 rate groups down to just 34 classes/subclasses and will make it easier to understand how your business and other businesses are classified.
To review details on how your business is being classified under NAICS, see our new Employer Classification Manual.
In addition, businesses that have more than one business activity will be classified according to their predominant business activity – the business activity with the highest amount of insurable earnings.
I am a business with one business activity
I am a business with more than one business activity
I am a business with multiple premium rates
Key features of our new premium rate-setting model
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.
The class rate represents the premium rate a business would pay based on the collective risk profile for all the businesses within the class and your class’s shared responsibility to maintain the insurance fund. If the class rate 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%