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Changes to the Assessment Policy Manual regarding New Experience Rating Plan

2000/01/21-06

THE WORKERS' COMPENSATION BOARD OF BRITISH COLUMBIA

RESOLUTION OF THE PANEL OF ADMINISTRATORS

Re: Changes to the Assessment Policy Manual regarding New Experience Rating Plan

WHEREAS:

Pursuant to Section 82 of the Workers Compensation Act, RSBC 1996, Chapter 492 and amendments thereto the Panel of Administrators (the "Panel") must approve and superintend the policies and direction of the Workers’ Compensation 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 experience rating plan effective January 1, 2000;

AND WHEREAS:

It is necessary to make amendments to the Assessment Policy Manual to implement the new experience rating plan;

THE PANEL OF ADMINISTRATORS RESOLVES THAT:

The attached amendments to the Assessment Policy Manual, which describe the new experience rating plan and reflect a change in internal responsibility for moving a firm or industry from one classification to another in response to changes in classification policy, are approved effective January 1, 2000.

DATED at Richmond, British Columbia, March 16, 2000.

 

By the Workers' Compensation Board

 
  MAUREEN NICHOLLS, CHAIR
PANEL OF ADMINISTRATORS

ASSESSMENT OPERATING POLICY

POLICY NO. 30:20:40
PAGE 5 OF 7
SUBJECT: CHANGE OF CLASSIFICATION
 DATE: JAN/00
  REPLACES ISSUE DATED: JUN/91

Reason

The change is, in most cases, not regarded as significant to the employer and it is unreasonable to expect the employer to be familiar enough with WCB classification policy to recognize the effect of a subtle change in the operations.

Rate Down

As a result of the classification change the assessment rate goes down, we will make the change effective the date it is reasonably verified the change took place or January 1st of the year prior to the year the WCB became aware of the change, whichever is later.

Reason

If the operation change is subtle enough, to fall into the evolutionary category, it would be difficult to determine with any degree of certainty the actual date of change. As well, it is the firm's responsibility to ensure we have sufficient information to review their classification at 1810 processing time.

Experience Rating

Since an evolutionary change is a more subtle change in the firm's operations and involves the production, servicing, etc. of the same product and the change is internal to the same legal entity, we will generally transfer the experience rating data from the old classification to the new one.

4. Change in WCB Classification Policy

This can result from the department moving an industry or segment of that industry from one classification to another, recognizing and defining a new industry or changing the definitions of the industries.

This will be done by authority of the Director of the Assessment Department. the Classification Committee and reported by a Minute. The Committee will incorporate in the Minute, the effective date and the question of experience rating.

 

SECTION 30:50:00

EXPERIENCE RATING

:10 The Concept of Experience Rating

:20 The Logging Industry Plan (1985 and Prior)

:30 Forest Products/Metal Mining Plans (1985 and Prior)

:40 The Construction Industry Plan (1985 and Prior)

:41 Era ER— The Plan

:50 Transfer of Experience Ratesing

:51 Experience Rating Cost Inclusion/Exclusions (1985 and Prior)

:52 Era ER— Cost Inclusion/Exclusions

ASSESSMENT OPERATING POLICY

POLICY NO. 30:50:10
PAGE 1 OF 2
SUBJECT: THE CONCEPT OF EXPERIENCE RATING
 DATE: JAN/00
  REPLACES ISSUE DATED: DEC/94

Experience rating is a means of adjusting individual employers’ assessment rates to reflect their actual claims cost experiences. Employers whose claims cost experience is better than their rate group average receive a discount. Employers whose claims cost experience is worse than their rate group average receive a surcharge.

The experience rating program (ER) attempts to promote positive safety attitudes and provide equity through a system of recognition and accountability for claims costs arising out of an individual employer’s operations. The goal of ER is to encourage those employers with high injury costs to reduce their costs, and to encourage those employers with low injury costs to keep these costs low. The desired outcome is a reduction in the social and economic costs of work-related injury and disease in British Columbia.

Experience rating is a mechanism which adjusts the basic assessment rate for a firm based on their actual claims experience. Experience rating was adopted to provide an incentive for injury prevention, and to provide some equity between employers in the same industrial group.

The assessment rate is designed to produce an amount required to meet the present and future costs of all claims, administration, etc., arising out of any one calendar year. Keeping in mind this "Assessment equals Cost" fundamental of the rate making system, the major difficulty of designing an experience rating system which compares costs to assessments is that the assessment for any one particular year is, for all intents and purposes, fully collected from employers within two years while the cost of claims arising out of any one particular year may not be fully paid for 50 or more years. This means that unless the experience rating comparison is left for 50 years, only partial costs will be compared to full assessments.

There were two methods used to achieve comparability between cost and assessment for the experience rating plans used prior to 1986:

1. In the Logging, Forest Products and Metal Mining plans, a reduced assessment figure was compared to the claim costs for the year. This reduced assessment figure represented the portion of the total assessment which was used only for current costs.

2. In the Construction plan, the assessment was left at full value but the current and future costs were compressed into a scale which set a value on claims from no wage loss to 150 days.

Claims for non-traumatic hearing loss, pneumoconiosis and other occupational diseases where it was impossible to isolate a single employer whose work place was responsible for the claim were not included for experience rating purposes. Costs associated with the rehabilitation of injured workers were also not considered when calculating experience rates in the Logging, Forest Products and Metal Mining plans. Fatal claim costs were averaged in the Logging, Forest Products and Metal Mining plans and set at a maximum value (150 days) in the Construction plan.

In all experience rating plans, a minimum three years' data was used.

ASSESSMENT OPERATING POLICY

POLICY NO. 30:50:10
PAGE 2 OF 2
SUBJECT: THE CONCEPT OF EXPERIENCE RATING
DATE: JAN/00
  REPLACES ISSUE DATED: JAN/86

Effective 1986, the Board introduced the Era (EXPERIENCE RATED ASSESSMENT) plan which replaced the existing Logging, Forest Products, Metal Mining and Construction plans. As well, in 1986, Era applied to the Heavy Manufacturing (subclass 0707) and Trucking (subclass 0851) industries. Expansion to other subclasses is planned for 1987.

Under Era, the basic concept of fostering positive safety attitudes and introducing a degree of equity down to the individual firm level is maintained.

To accomplish this objective, the Board designed Era to fill the need for a responsive and straightforward plan.

Era uses two years of data to determine a firm's rating and, to avoid the necessary formula complications required when costs are compared to assessments, establishes a firm "cost to assessable payroll ratio" which is compared to the subclass "cost to assessable payroll ratio" (average) with the variance between the firm ratio and the subclass average ratio determining the rating.

See:

30:50:41 - for details of the Era plan.

30:50:50 - for the criteria used to transfer Experience Rating.

30:50:52 - for Era Cost Inclusion/Exclusions.

ASSESSMENT OPERATING POLICY

POLICY NO. 30:50:41
PAGE 1 OF 3
SUBJECT: ER -- THE PLAN
DATE: JAN/00
  REPLACES ISSUE DATED: JUNE/93

Effective January 1, 2000, a new experience rating plan (ER) replaced the prior experience rating plan (Era). The prior plan was adopted effective 1986.

The concept behind the prior plan, of promoting positive safety attitudes and providing a degree of equity down to the firm level, is maintained in the new ER plan.

For simplicity, experience rated discounts or surcharges are generally expressed as percentage adjustments to employers' base assessment rates. For example, if an employer's base assessment rate is $1 per $100 in assessable payroll, and the employer has a 10% discount, the ER adjusted rate is $0.90 per $100 in assessable payroll. If the same employer has earned an ER surcharge of 10%, the ER adjusted rate would be $1.10 per $100 in assessable payroll.

The main features of the ER plan are as follows:

  1. The same ER plan applies to all employers and independent operators in rateable classes (sectors).
  1. The plan is prospective in application. ER adjustments are calculated based on past claims costs experience, and are applied to employers' future assessment premiums. Specifically, ER is calculated each fall and is applied in January of the following year.
  1. ER adjustments are based solely on claims costs. Costs used for the purpose of experience rating are costs directly associated with compensation claims, including the capitalized value of pensions awarded. The cost used for fatal claims will be the five-year moving Board-wide average cost of fatal claims rather than the actual cost of each claim.
  1. The Board’s administrative costs are not included in the ER calculation. Several types of claims costs are specifically excluded from consideration. These exclusions are discussed in Policy 30:50:52.
  1. The plan uses the claims costs experience on a 3 year window of claims to calculate each firm’s ER adjustment. This includes all costs of those claims up to the calculation date in the year following the most recent year of claims.

    2. For example, the 2000 rating uses the costs of claims which occurred in 1996, 1997 and 1998, along with the amounts paid on those claims between 1 January 1999 and 30 June 1999 (the calculation date for the 2000 ER adjustment).

  2. The costs within the ER window are subject to maximum limits for an individual claim as follows: 100% of the first $70,000 of costs on a claim will be included; 50% of the next $50,000 of costs on the claim will be included; and 10% of all costs above $120,000 on the claim will be included in calculating the employer’s ER adjustment.
ASSESSMENT OPERATING POLICY

POLICY NO. 30:50:41
PAGE 2 OF 3
SUBJECT: ER -- THE PLAN
DATE: JAN/00
  REPLACES ISSUE DATED: JUNE/93

  1. To calculate the ER adjustment, the employer’s performance in the three year window is averaged as follows: the employer’s performance in the most recent year is weighted at 50%, in the prior year at 33.3%, and in the most distant year in the ER window at 16.7%. An employer’s performance is its "cost to assessable payroll ratio".
  1. In determining an employer’s experience rating, the employer’s "cost to assessable payroll ratio" is compared to the "cost to assessable payroll ratio" of the rate group to which the employer is assigned.
  1. The payroll used in the ER calculation equals the total assessable payroll that is used to calculate employers' assessments in the three year ER window. This amount excludes earnings above the individual maximum, and includes personal optional protection amounts.
  1. The calculation of an employer’s ER adjustment involves combining its cost experience in the current ER window with its ER factor for the previous year. The relative weight given to each of these components reflects the level at which the employer participates in the plan.

    2. Employers participate at different levels, based on the size of their annual base assessment (the employer’s assessment before the ER adjustment). The higher an employer’s base assessment, the higher its level of participation in the plan. A higher level of participation means an employer’s ER adjustment is more responsive to its claims costs experience in the current ER window.

  2. The minimum participation level is set at 10%.
  1. The maximum ER discount is 50%. The maximum ER surcharge is 100%.
  1. The precise formula for calculating experience rating is determined by the Finance/Information Services Division, and is available upon request.
  1. Employers enter the plan for the first time when they have had some payroll within the current ER window.
  1. Where any part of an employer's payroll has been estimated under Section 38, any resulting discount will not be applied but if a surcharge results it will be applied. If a Section 38 estimate is replaced by the correct payroll information, the experience rating will be recalculated.
ASSESSMENT OPERATING POLICY

POLICY NO. 30:50:41
PAGE 3 OF 3
SUBJECT: ER -- THE PLAN
DATE: JAN/00
  REPLACES ISSUE DATED: JUNE/93

  1. The employer, for experience rating purposes, shall be the legal entity operating the business and if that employer operates divisions, whether they are separately registered with the Board or not, it will be that employer’s combined experience which will determine the rating for all that employer’s operations.
  1. Where an employer’s classification assigned by the Board changes, the effect on the employer’s experience rating is set out in Policy 30:20:40.
  1. Employers registered voluntarily under Sections 3(5) to 3(7) or by a variance from exemption are excluded from participating in the experience rating plan.
ASSESSMENT OPERATING POLICY

POLICY NO. 30:50:50
PAGE 1 OF 2
SUBJECT: TRANSFER OF EXPERIENCE RATESING
DATE: JAN/00
  REPLACES ISSUE DATED: MAR/95

Employers often change portions of their business for a variety of reasons. These changes may be to the equipment used, the location of the business, the ownership of the business or a change in the legal entity running the business. When changes of this nature occur in the business, the question posed is whether there should be a change in the experience rating assessment for the business.

Policy 30:50:41 (Era ER- The Plan) states that the concept behind the plan is to promote positive safety attitudes and provide a degree of assessment equity down to the firm level.

It is the owners of the business who determine the key ingredients of the business and the general approach to safety in the business.

Therefore, the criteria as to whether the experience rating will be transferred/continued will rest on whether there has been a change in ownership of the business and will generally follow the assignment of the account number (Policy 20:30:21). Where the ownership remains substantially unchanged, experience rating will be transferred/continued. Where ownership has substantially changed, experience rating will not be continued/transferred and the new business will have to determine its own experience rating.

Where the business changes result in a change of classification, the criteria set out in Policy 30:20:40 (Change in Classification) must also be considered.

In situations where a new "account number" is assigned (see Assessment Policy 20:30:21) experience rating will be transferred if:

  1. The old firm has ceased operating completely and a new firm starts up and carries on the business; and
  2. The majority of ownership of the new firm remains the same as the old firm; and
  3. The same type of business is carried on as evidenced by the new firms receiving the same classification as the old firm.
ASSESSMENT OPERATING POLICY

POLICY NO. 30:50:50
PAGE 2 OF 2
SUBJECT: TRANSFER OF EXPERIENCE RATES
DATE: JAN/00
  REPLACES ISSUE DATED: OCT/92

In situations where any of these conditions are not fulfilled, the experience rating will not be transferred as:

  • In condition (1), if the old firm continued to operate, it would be entitled to the experience rate and not the new firm.
  • In condition (2), as outlined previously in this policy, ownership is the basis for the transferring.
  • In condition (3), a key element of the plan is comparing the firms "costs to assessable payroll ratio" to the "costs to assessable payroll ratio" of the subclass rate group to which they are assigned. According to Policy 30:20:40, a distinct change in business of any firm causing a change of classification is one of the situations which results in the firm having to establish a new experience rating position.
ASSESSMENT OPERATING POLICY

POLICY NO. 30:50:52
PAGE 1 OF 3

SUBJECT: ERA - COST INCLUSION/EXCLUSIONS

DATE: JAN/00
  REPLACES ISSUE DATED: FEB/93

30:50:41 sets out the Era experience rating (ER) plan in detail.

As a general rule, any acceptable claim coded to a particular employer is counted for experience rating purposes and the costs of record within the review period are used in determining the cost of payroll ratio for the firm and the subclass rate group.

One of the most common requests from an employer under experience rating is to exclude claim costs on the basis that the claim was not that particular employer's fault.

The no fault concept of workers' compensation relates to the acceptability of the claim, not to the responsibility for the costs. While tThe assessment system operates similar to a mutual insurance scheme with all employers contributing to the cost of injuries occurring in their particular industry group rate group., All firms in a rate group would contribute at the same rate, except experience rating allows each firm’s assessment rate to be modified based on the firm’s particular claims costs.

experience rating provides a slight modification to that principle by allowing the claims costs arising from a particular firm's operation to have a slight effect on the collective industry assessment rate.

W.C. Reporter Decision 49 sets out the basic philosophy of including claims for experience rating purposes and, in particular, dismisses the argument to remove claims from the experience rating accounting on the basis of fault.

Decision 49 reads in part:

"The system of experience rating is based to some extent on notions of fault. It reflects the view that some accidents are preventable, and that employers in whose operations injuries are more frequent or substantial should pay higher assessments than those in whose operations injuries are less frequent or less substantial. But to the extent that the system concerns itself with fault, it does so by reference to aggregated data, not by moral judgments on individual claims. To take out of this accounting a particular accident because it was adjudged not to be the fault of the particular employer would, therefore, introduce a distortion rather than an improvement in accuracy.

"There may be scope for argument about what is a fair and proper formula to apply in the administration of an experience rating system. But once a formula has been adopted, fairness among employers in the class then requires the formula must be strictly followed. To take out a particular claim on the application of the particular employer would be unfair to other employers whose experience includes similar claims, but who have not initiated similar applications."

ASSESSMENT OPERATING POLICY

POLICY NO. 30:50:52
PAGE 2 OF 3

SUBJECT: ERA - COST INCLUSION/EXCLUSIONS

DATE: JAN/00
  REPLACES ISSUE DATED: JAN/99

The Board therefore will not consider an argument as to employer culpability in determining the inclusions/exclusions of claims and their costs for experience rating purposes.

From Decision 49 it is apparent that while the Board could exercise discretion in excluding claims for experience rating purposes, it was extremely reluctant to do so.

There are, however, some types of claim costs which are excluded from consideration. These are:

  1. Costs recovered by way of a third party action. (For details, see #111.25 of the Rehabilitation Services and Claims Manual).
  2. Investigation and/or compensation costs paid out prior to the disallow of a claim or reversal of a decision by a Board officer or the Review Board, Appeal Division or Medical Review Panel. (For details, see #113.10 of the Rehabilitation Services and Claims Manual).
  3. Costs transferred to the class of another employer or independent operator under Section 10(8). (For details, see #114.10 of the Rehabilitation Services and Claims Manual).
  4. Costs assigned to the funds created by Section 39(1)(d) and (e). (For details, see #114.30 and #114.40 of the Rehabilitation Services and Claims Manual).
  5. Occupational disease claims which on average require exposure for, or involve latency periods of, two or more years before manifesting into a disability. The diseases presently excluded on this ground are :

    Non traumatic hearing loss, excluding hearing loss resulting from other injuries
    Silicosis
    Asbestosis
    Other diagnosed pneumoconiosis, for example anthracosis and siderosis

     

ASSESSMENT OPERATING POLICY

POLICY NO. 30:50:52
PAGE 3 OF 3

SUBJECT: ERA - COST INCLUSION/EXCLUSIONS

DATE: JAN/00
  REPLACES ISSUE DATED: JAN/99

    Pneumoconioses not specifically diagnosed
    Heart disease
    Cancer
    Hand-arm vibration syndrome, vinyl chloride induced Raynaud's phenomenon, disablement from vibrations

  1. Costs after 13 weeks where Section 5(3) applies. (For details, see #16.60 of the Rehabilitation Services and Claims Manual).
  2. Costs from accidents substantially due to personal illness, for example epilepsy. (For details, see #15.30 of the Rehabilitation Services and Claims Manual).
  3. Injuries during a retraining program sponsored by the Vocational Rehabilitation Department. (For details, see #88.43 and #88.54 of the Rehabilitation Services and Claims Manual).
  4. Pension costs arising from an aggravation of an injury or a subsequent injury arising out of treatment causing death or permanent disability that would not otherwise have been expected. (For details, see #115.31 of the Rehabilitation Services and Claims Manual).
  5. The cost of survivor benefits to the extent of the reserve for a permanent disability award being paid to the deceased worker where the death resulted from the condition for which the pension was being paid. (For details, see #115.32 of the Rehabilitation Services and Claims Manual).

The decision whether a claim falls within one of the exclusions is not made by the Assessment Department. It will usually be made by an officer in the Compensation Services Division. In the case of third party actions (Exclusion 1), a Board solicitor makes the decision.