Experience Rating Review

1
Experience Rating Review

• Proposed NEER Enhancements for 2004 Injury Year
• Public Consultation
• September - October 2003

2
Contents

• Why NEER Enhancements in 2004?
• Experience Rating Purpose and Objectives
• NEER Enhancements
• Next Steps

3
How NEER Works
OrganizationsActual Claim Cost
Components of Gross Premium Rate
Pooling ChargeUnfunded Liability (Retired by
2014)
Pooling Charge NEER Insurance (LLOD / Claim
Limits /Firm Limits / SIEF)
Pooling Charge NEER Insurance (LLOD / Claim
Limits /Firm Limits / SIEF)
NEER Actual Claim Cost
NEER Expected Claim Cost
Compared
Proposed Enhancements - Higher Maximum Claim
Limit- No Project Future Cost On Low LOE
Claims - Higher Rating Factor Calculation -
Higher Minimum Rating Factor - Higher Maximum
Rating Factor
Overhead(WSIB/MOL/SWA/LEG.)
Overhead(WSIB/MOL/SWA/LEG.)
Projected Future Cost (Reserves)
Expected Cost of New Claims
Benefit Payments to Date
Refund or Surcharge
Rating Factor
Surplus (ECgtAC) or Deficit (ECltAC)

X
4
Why is the WSIB proposing to enhance NEER
starting in 2004 injury year?

• WSIBs plans to introduce a new plan to replace
  NEER and CAD-7(ER plan for Construction Industry
  only).
• Discussions with some employer associations have
  shown support for changes proposed in the
  development of the new plan.
• More time is needed to develop a prototype of the
  new plan to demonstrate its value and to ensure
  it works right.
• Prototype development to be completed in 2004.
• Consultation on the new experience rating plan is
  scheduled for mid-2004.

5
Why is the WSIB proposing to enhance NEER
starting in 2004 injury year?

• Other Concerns (Continued)
• Major reduction in the size of financial
  incentives for employers transitioning from MAP
  (ER plan for small employers with premiums
  between 1,000 25,000) to NEER.
• Partial compliance in claims reporting that may
  arise from holding reserves on low cost claims.
• The new plan may impose too much change too
  quickly.
• Incremental change will improve understanding and
  stage the impacts.

6
Commitment to WSIB Vision

• We are committed to improving experience rating
  to provide appropriate motivation through
  financial incentives.
• We believe that experience rating is a strong
  motivator that
• improves workplace health and safety
• eliminates workplace injuries, illnesses and
  fatalities
• improves early and safe return to work

7
Evaluation Criteria for Enhancements

• Provides value towards achieving the objectives
  of experience rating
• Aligns with proposed direction of the experience
  rating plan
• Is administratively easy for employers and the
  WSIB to implement and understand

8
Summary of NEER Enhancements
Two options offers choice of moderate (Option A)
and stronger (Option B) sets of enhancements.
9
What are the NEER enhancements?

• Higher Minimum Rating Factor
• Current - 25
• Option A - 40
• Option B - 40
• Why?
• The size of the incentives (refunds and
  surcharges) for small employers provides
  insufficient financial incentive to improve
  workplace health and safety.
• An increase in the minimum rating factor will
  restore some of the financial incentive (refunds
  and surcharges) that has eroded over the past
  decade.
• MAP has maximum refunds and surcharges of 10 and
  50 of gross premium, whereas under NEER maximum
  refunds and surcharges for firms at the MAP
  boundary (25,000 premium) are only 4 and 8 of
  gross premium.

10
What are the NEER enhancements?

• Higher Maximum Rating Factor
• Current - 90
• Option A - 100
• Option B - 100
• Why?
• An increase in the maximum rating factor will
  restore some of the financial incentive (refunds
  and surcharges) that has eroded over the past
  decade.

11
What are the NEER enhancements?

• Change in Rating Factor Formula
• Current - Premiums / (Premiums (5 Maximum
  Insurable Earnings))
• Option A - Premiums / (Premiums (2.5 Maximum
  Insurable Earnings))
• Option B - 0.20 maximum of
• Why?
• Helps restore some of the financial incentive
  (refunds and surcharges) that has eroded over the
  past decade.
• Option A increases rating factor while retaining
  structure of the current formula
• Option B increases every firms rating factor and
  allows the factor to reach 100 for very large
  firms.
• Alternative Insurable Earnings base formula
  recognizes firm size, as well as premium size,
  when setting firms accountability for its own
  experience.
• The Insurable Earnings alternative impacts
  employers with premium rates below 2.23 i.e.
  just higher than the current average premium rate.

Insurable Earnings
. Insurable
Earnings (225 Maximum Insurable Earnings)
Premiums
. Premiums (5 Maximum
Insurable Earnings)
OR
12
What are the NEER enhancements?

• No Reserves
• Current - Health Care Only
• Option A - Health Care Only less than 500 of
  Non-Health Care
• Option B - Health Care Only less than 1,000 of
  Non-Health Care
• Why?
• Reduce the motivation for partial compliance by
  reducing the cost impact of small cost claims on
  the employers experience rating record.
• Further increase employer focus on managing more
  serious claims.

13
What are the NEER enhancements?

• Claim Cost Limit
• Current - 4 times maximum insurable earnings
  (i.e. 2003 - 262K)
• Option A - 4 times maximum insurable earnings
  (i.e. 2003 - 262K)
• Option B - 5 times maximum insurable earnings
  (i.e. 2003 - 328K)
• Why?
• Increases the employers accountability for higher
  cost claims.
• Reduces the amount of insurance primarily for
  large employers and increases the financial
  incentive (refunds and surcharges).

14
What are the NEER enhancements?

• Expected Cost Factors
• Current - Injury year specific factors
• Option A - Injury year specific factors
• Needs adjustment for removal of low cost claims.
• Option B - Injury year specific factors
• Needs adjustment for higher Claim Cost Limit and
  removal of low cost claims.
• Why?
• Refining the annual maintenance of expected cost
  factors is necessary in order to better reflect
  each rate groups expected claim costs.

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Impacts of NEER Enhancements
16
Summary of Impacts ofNEER Enhancements
17
Next Steps

• Analyse consultation feedback (Due by October 15)
• Take a recommendation to the WSIBs Board of
  Directors early in December 2003.
• Communicate approved NEER enhancements to
  employer by mail and through the WSIB web site in
  the last half of December 2003.
• Approved enhancements in effect for the injury
  year 2004 and forward. First rebates and
  surcharges issued on 2004 injury year in
  September 2005.
• Consultation on the New Experience Rating Plan is
  planned for mid-2004.