Quick Links
Customer Centres
Changes to the Assessment Policy Manual regarding Classification and Rate Making
99/12/17-03
THE WORKERS' COMPENSATION BOARD OF BRITISH COLUMBIA
RESOLUTION OF THE PANEL OF ADMINISTRATORS
Re: Changes to the Assessment Policy Manual regarding Classification and Rate Making
WHEREAS:
Pursuant to Section 82 of the Workers Compensation Act, RSBC 1996, Chapter 492 and amendments thereto (the "Act") the Panel of Administrators (the "Panel") must approve and superintend the policies and direction of the Workers’ Compensation Board (the "Board"), including policies respecting compensation, assessment, rehabilitation and occupational safety and health, and must review and approve the operating policies of the Board;
AND WHEREAS:
The Panel has approved a new classification system for employers and independent operators effective January 1, 2000;
AND WHEREAS:
It is necessary to make amendments to the Assessment Policy Manual to set out the new classification system in policy;
THE PANEL OF ADMINISTRATORS RESOLVES THAT:
The attached amendments to the Assessment Policy Manual, which describe the new classification system and clarify the policy on rate making, are approved effective January 1, 2000.
DATED at Richmond, British Columbia, December 17, 1999
| By the Workers' Compensation Board |
|
| DON COTT, CHAIR PANEL OF ADMINISTRATORS |
Disclaimer: Revision formatting (strikethrough) in this section is supported by Internet Explorer and Netscape browser versions 4.0 and higher, and may appear as ordinary text if viewed with older versions.
| ASSESSMENT OPERATING POLICY | POLICY NO. 30:10:00 |
| PAGE 1 of 2 | |
|
SUBJECT: THE CLASSIFICATION SYSTEM
|
DATE: JAN/00 |
| REPLACES ISSUE DATED: JUN/93 |
Under the Workers Compensation Act, the cost of compensable injuries and diseases is paid entirely by the employers in the province. The costs related to these injuries and diseases along with all other costs associated with the administration of these claims and carrying out other statutory requirements are collected from the employers in the province in the form of assessments. The operations of the assessment classification system determines the rate at which each employer must contribute towards the payment of these costs.
The classification system is based on the principle that the cost of producing a product or providing a service includes the cost of injuries or diseases incurred by the workers producing the product or providing the service. The classification system is therefore constructed on the basis of industrial undertaking rather than on an occupational or hazard basis. In other words, if a specific product were being manufactured, the classification would be the same regardless of the process used in its manufacture, or whether the manufacturing was done by the employer's workers or subcontracted out to another firm. An industrial classification therefore includes all occupations within the industry, including office or clerical staff.
Occupational rating has been considered by the Board but rejected for many reasons, including:
- If the employers in B.C. collectively must pay $400 million in a year to cover the costs payable under the Act in that year, they would still pay $400 million under a system of classifying by occupation. If the assessment rate for some occupations went down, it would have to increase by a corresponding amount for other occupations to collect the same amount of assessment revenue.
- Occupational rating would complicate the assessment procedures for both employers and the Board. The need for specific guidelines for each occupation would be apparent.
- Regardless of any such guidelines, considerable difficulties would arise in assigning individuals to occupational groups leading to incorrect reports and significantly more auditing functions within the Board and disputes to be resolved. The resulting increase in administrative costs would have to be paid by the employers.
- There would be a greater opportunity for fraud in the reporting of individuals in the wrong occupational category, and auditing and investigating in order to minimize such a problem would again result in higher administrative costs. Additionally, incorrect or fraudulent reporting creates an inequity to those who report correctly.
- Often, an individual may work at two or more occupations. Setting guidelines to determine the correct split in payroll between occupational groups would be difficult and not acceptable to all employers.
- Occupational rating would require far more classifications and assessment rates than are currently used. Each classification would have fewer employers in it, and would therefore be a less stable statistical base on which to set assessment rates.
Another method of classifying firms is to establish only one group into which all employers are classified, regardless of their industrial undertaking. In this way, every employer would pay the same assessment rate and all would share in the total costs of administering the Act. This is the pure collective liability theory of assessment; but the inequity of assessing very hazardous industries at the same rate as industries with relative few injuries is obvious. At the other end of the scale is self-insurance, where a firm pays only its own costs.
The BC Board, along with other jurisdictions in Canada, has chosen to make self-sufficient groups of employers on the basis of the industries in which they operate. In establishing these groups, the size is of critical importance. Since one serious injury can cost in excess of $1 million, it is apparent that the size of the group must be large enough to provide for an adequate spread of the risk and stability in the assessment rate.
This grouping is done on the basis of industry similarity and an experienced cost similarity. Therefore, while there are separate classifications for very small industrial groups to provide statistical data, each industrial group does not necessarily stand alone but will be grouped with others based on industry and cost similarity if necessary. These two factors, classification by industry and forming a group large enough to be a valid insurance base, are the basis of the classification system.
The Board classifies all employers and independent operators into classification units on the basis of the industry in which the firm is operating, as described in Policy 30:20:10. Not all industrial classifications are large enough to stand alone; they must be grouped together to provide an adequate insurance base.
Classification units which are large enough will form their own industry group. Otherwise, the Board will combine classification units into industry groups on the basis of similarity of industrial activity and a reasonable expectation of similar cost rates. Industry groups must be of sufficient size to be fairly regarded as having some predictability for future claims experience. The Board’s actuary will determine the minimum size for industry groups.
Industry groups which are large enough will form their own rate group. Otherwise, the Board will combine industry groups into rate groups on the basis of similarity of historical cost rates. Rate groups must meet a minimum size requirement as determined by the Board’s actuary, in order to be viable for statistical and insurance purposes. Assessment rates are calculated at the rate group level.
Where the injury cost rate of an industry group differs from the average injury cost rate of its rate group by more than 20% for three consecutive years, the industry group will be moved to a rate group that better reflects its actual injury cost rate.
Rate groups are equivalent to "subclasses" as the term is used in the Workers Compensation Act. Sectors are equivalent to the "classes" described in section 37 of the Act.
| ASSESSMENT OPERATING POLICY | POLICY NO. 30:20:10 |
| PAGE 1 of 2 | |
|
SUBJECT: METHOD OF ASSIGNING CLASSIFICATIONS
|
DATE: JAN/00 |
| REPLACES ISSUE DATED: MAR/95 |
Classifications Employers and independent operators are assigned to accounts classification units on the basis of the industry in which the employer firm is operating. In assigning the classification, some of the factors considered are the type of product or service that is being provided, the processes and equipment that are used, and the type of industry with which the employer firm is in competition. It is desirable that the assessment classification system not be an economic factor in the way business is conducted in the province.
Occupations of individual workers may be reviewed when assigning the classification, but only as an indicator as to the type of industry being carried on by the firm.
Once a clear understanding of an employer's industrial activity has been reached, the appropriate classification unit is selected from the Classification and Rate List (which is available upon request from the Assessment Department)list of classification units. This classification is then added to the firm's registration and an assessment rate automatically is assigned. The employer reports payroll in the appropriate classification and pays an assessment on that payroll at the assessment rate for that classification.
This manual does not contain the specific criteria for putting a firm in a particular classification, unit. because of the immense number and detailed nature of these rules. However, the description of every classification unit, these rules, along with copies of the Classification Committee Minutes (see Section 30:20:50), are available for viewing by contacting the at any one of the Board's. offices throughout the province. When applying these rules descriptive criteria to specific situations or firms, individual consideration will be given and variations from the policy will may be implemented where the Board's judgment suggests that literal application may be inappropriate or inequitable.
Where a firm's operations are an inescapable part of another firm's operations (e.g. sales, administration, management, etc.) the firm's classification will be the same as the other firm regardless of ownership.
If a firm's operations are an ancillary or an extension or add-on phase (e.g. delivery) of other firms, the classification will be the same as the other firms if there is a degree of common ownership. Even if the firm is separately registered, the two firms will be regarded as one firm for the purpose of classification. After that is done, the policy of assigning multiple classifications (30:20:20) will be applied. Otherwise, the firm will be assigned the appropriate classification.
| ASSESSMENT OPERATING POLICY | POLICY NO. 30:20:50 |
| PAGE 1 of 1 | |
|
SUBJECT: THE CLASSIFICATION COMMITTEE
|
DATE: JAN/00 |
| REPLACES ISSUE DATED: JUNE/91 |
Not all industries fit into the precise wording in the Classification and Rate List of a classification unit description. Some judgment decisions have to be made and, within the Assessment Department, these decisions may be referred by staff to an internal a Board committee called the Classification Committee. This committee meets to discuss questionable or disputed classifications, to review and provide input on classification issues, and to investigate and decide precedent setting matters. Decisions from the Committee may be documented in Classification Committee Minutes which are distributed to department staff as classification guidelines. The Assessment Department will discuss a decision of the Classification Committee with any affected employer.
| ASSESSMENT OPERATING POLICY |
POLICY NO. 30:30:00 |
| PAGE 1 of 1 | |
|
SUBJECT: RATE MAKING
|
DATE: JAN/00 |
| REPLACES ISSUE DATED: JAN/83 |
SECTION 30:30:00 - RATE MAKING
Once the classifications rate groups have been established, each industrial rate group is self-sufficient when it comes to cost. That is, the cost of injuries and diseases which occur to the workers of employers in each group are is paid by all of the employers in that group. All employers make a contribution to reserves for enhancement, disaster, etc., so that one particular group is not unfairly burdened with costs which may or may not have arisen out of their operations.
The concept of rate making is quite simple. Whatever a particular industrial group costs in terms of injuries and diseases is what that group pays in the way of assessments. This cost, divided by the total assessable payroll for the group, is the assessment rate. Each employer in the industrial group pays the same assessment rate (see Section 30:50:00 - Experience Rating, for exceptions), so that each employer contributes towards the total cost of the group in the same ratio that their payroll bears to the total payroll of the group. Each year, the total cost for a particular rate group is estimated. That total cost is divided by the estimated total assessable payroll for the group to produce the base assessment rate for the group for that year. Every employer in the rate group pays that base assessment rate, modified by their own experience rating adjustment if applicable.
The estimated total annual cost for each rate group is made up of different costs, as required by section 39(1) of the Act. This cost is composed of the estimated current costs of all injuries which occur during the year; capitalized reserves sufficient to meet the future payments of compensation on those injuries; the rate group’s contribution to other reserves described in section 39(1); the rate group’s share of the Board’s administrative costs; plus an amount to amortize the rate group’s account balance if appropriate.
The assessment rate for each industrial rate group is reviewed annually and adjusted accordingly. The past cost history of the group is examined and an assessment rate established. To this assessment rate is added a factor to bring the data up to a current base, an amount to amortize the unfunded liabilities, and contributions to the necessary reserves, etc. The result is the assessment rate which is applied to all firms within the group.
The assessment rates may be adjusted more frequently than on an annual basis, but this will be avoided where at all possible.