Rate Setting Model
POL 13/2017

Effective date: January 1, 2018

Application: All employers.

Policy subject: Rate setting, classification, and experience

Purpose:

To outline WCB’s rate setting model.

BACKGROUND

  1. The Workers’ Compensation Act, 2013 (the “Act”) authorizes the Workers’ Compensation Board (WCB) to levy an assessment on the employers in each class of industries an amount based on any percentage of the employers’ payrolls or on any other rate, or an amount specified by the WCB, that is sufficient to pay (Section 134(1)):
    1. The compensation with respect to injuries to workers in the businesses within the class.
    2. The expenses of the administration of the Act; and
    3. The cost of the administration of the occupational health and safety program for that year.
  2. If, in any year, an industry premium rate will exceed the previous year rate by greater than 10.5%, WCB will publish a notice in The Saskatchewan Gazette. Employers can submit a written representation to the WCB regarding the increase (Section 134(4)).
  3. An Asset Liability Study completed in 2015, recommended a review of WCB’s premium rate setting model. The review was completed in 2016 and several enhancements recommended and approved by the Board Members. In 2016 and 2017, WCB held public consultation sessions, including industry specific presentations to educate employers and interested parties on the enhancements to the rate setting model approved by the Board Members.
  4. The main objectives of WCB’s annual rate setting process are to ensure that:
    1. The overall premium requirements of the WCB for the coming year are met. Premiums should cover all current and future costs for claim from employers operating during the year: worker compensation and vocational rehabilitation benefits, healthcare, dependant benefits, administration, safety associations, and other requirements (e.g., legislative changes, funding requirements, etc.).
    2. The distribution of these revenue requirements across all employers is equitable. While maintaining collective liability, it should promote accountability and fairness, and recognize injury prevention and effective claims management.

POLICY

Guiding Principles

  1. The WCB’s rate setting model process balances competing guiding principles:
    1. Fairness (i.e., accountability, equity and incentives for prevention).
      1. Premiums paid by current employers should cover the costs of their injured workers during the premium period.
      2. This principle covers:
        (a) Inter-generational equity – current employers should not be paying for claim costs generated by past employers, nor should they be subsidizing the claim costs of future employers.
        (b) Intragenerational equity – employers that incur injuries should be responsible for the costs associated with those injuries.
      3. A fair rate setting model encourages workplace safety and effective return to work programs.
    2. Collective liability (i.e., insurance).
      1. Employers, as a group and those within the same industry, are jointly responsible for all workers’ compensation costs. Also, employers should not be excessively punished for unusually costly claims, therefore portions of unusually costly claims’ costs should be shared by all employers.
    3. Predictability (i.e., rate stability).
      1. Employers should rely on a level of predictability and stability in premiums.
    4. Transparency (i.e., ease of understanding).
      1. Employers should be able to understand the factors that went into setting premiums, and the WCB should be able to clearly communicate this information to employers.

Rate Setting Model Elements

  1. The rate setting model is used annually to determine industry premium rates. It takes into account the following key elements:
    1. Credibility (extent to which an industry’s past claims costs experience can be used to predict future claims costs):
      1. The rate setting model uses the collective claims costs experience of all employers within an industry rate code to determine the credibility percentage of the industry rate code.
      2. If an industry rate code has sufficient claims costs experience and is determined to be 100% credible, five most recent years of claims costs are used to predict future costs for the industry rate code.
      3. If an industry rate code does not have sufficient claims costs experience and is less than 100% credible:
        (a) The credibility percentage will be applied to the five most recent years of claims costs experience of the industry rate code, and
        (b) The remaining percentage to realize 100% credibility will be applied to the ten most recent years of claims costs experience of the industry rate code.

        For example, if an industry rate code is 75% credible, 75% of the five most recent years of claims costs will be added to 25% of the ten most recent years of claims cost to predict future costs for the industry rate code.
    2. Costly claim pooling:
      1. Individual claims with costs are assigned to the industry rate code.
      2. Individual claims with costs greater than three times the maximum assessable earnings will be shared proportionally among all industry rate codes.
    3. Long term claim pooling:
      1. After seven years, a claim’s costs will be shared proportionally among all industry rate codes.
    4. Fatality costs:
      1. Fatality costs are assigned to the industry rate code in which they occur and are subject to costly claim and long term claim pooling.
    5. Projection of claims costs:
      1. The rate setting model uses the estimated change in the number of workers covered by WCB in the rate year and historical claims costs to project future costs.
      2. The projected future costs are converted to a net present value revenue requirement as expressed in the change in the benefits liability recognized by the WCB. 
      3. Assumptions to the benefits liabilities are applied as approved by the Board Members annually.
    6. Administration costs:
      1. Administration costs are allocated to each rate code based on the payroll and claims costs incurred within each rate code
    7. Industry payroll:
      1. Industry payroll projections are determined by examining historical payroll information, industry trends within each industry rate code, and payroll estimates provided by employers.
    8. Safety associations:
      1. Some industries sponsor safety associations that promote workplace safety through education and other initiatives. WCB collects revenue on behalf of the safety associations by increasing premium rates for all employers in the participating industry rate code by the amount necessary to fund the respective safety association.
  2. The rate setting model is reviewed annually by an external actuary. A comprehensive review is also completed periodically to ensure the rate setting model effectively balances WCB’s guiding principles.
  3. WCB staff will ensure that the WCB website contains up to date information on the rate setting model, including an explanation of how industry premium rates are set. A table of industry premium rates will be published each year (POL 11/2020, Industry Premium Rates).
  4. Discounts or surcharges may be applied to an employer’s industry premium rate through WCB’s Experience Rating Program (POL 27/2016).

Policy references

Legislative Authority

The Workers’ Compensation Act, 2013

66, 67, 116, 119, 120, 121, 134, 135, 144, 145, 146, 149, 150

Document History

POL 05/2015 Rate Setting Model

Complements

POL 11/2020 Industry Premium Rates
POL 14/2017 Funding
POL 27/2016 Experience Rating Program – Discounts or Surcharges
POL 21/2016 Transferring a Firm’s Experience
POL 14/2011 Employer Classification

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