With the amount of effort companies spend on health and safety programs, it might be surprising to know that many organizations don't bother paying attention to their statement of claim — but it happens, and it can end up costing them.
I'm a safety guy. I help companies develop health and safety programs designed to comply with the multitude of health and safety regulations that exist in Ontario. Given the amount of time and resources that are spent on these programs, I am always amazed that so many senior managers never look at the reports that they are sent every quarter by the Workplace Safety and Insurance Board (WSIB). Typically, these reports are sent off to accounting without ever having been seen by the boss.
The WSIB is a 4,000-employee provincial government bureaucracy that takes in premiums from employers and distributes disability payments to injured workers. The workplace safety and insurance system is financed through premiums charged on the insurable payrolls of employers; the WSIB receives no funding from the government. From the premiums paid by employers, the WSIB provides benefits to employers and workers. For employers, the system provides no-fault, collective liability insurance, while workers receive medical care and wage loss replacement, along with help returning to the workforce.
Unfortunately, assets in the WSIB insurance fund are substantially less than what is needed to satisfy the estimated lifetime costs of all claims currently in the system. This funding gap is known as an "unfunded liability." The provincial auditor's most recent estimate of the unfunded liability is $11.5 billion, which is an increase of $3.4 billion from December 31, 2007.
The problem — for the WSIB and the provincial government — is that there are only three ways to address the unfunded liability: raise premiums, reduce benefits or dramatically and magically increase investment returns.
Recently, the WSIB began sending out notices to Ontario companies letting them know about how much of an increase they can expect to pay in 2011. Companies are seeing increases of two to 15 per cent, and in some cases even more.
The following story is true, and is provided to emphasize the lack of awareness that most senior managers have with respect to WSIB quarterly reports. The names of the individual and the company have been changed; however, the essential facts are accurate.
The ACME story
This past November, I started a health and safety assessment for a 100-person manufacturing plant a little west of Toronto — I'll call it ACME. My ACME contact is Larry, the production manager. Larry is also the safety coordinator, the human resources coordinator and the quality manager.
When I asked Larry for his WSIB quarterly NEER statements, he looked a little puzzled, then scratched his head and said he'd have to check with accounting. About a half hour later, Larry marched triumphantly into the boardroom with a file folder labelled, "WSIB" and dropped it onto the table in front of me.
I took 10 seconds, reviewed the numbers, looked at Larry, and raised an eyebrow. Larry looked nervous. "Is something wrong?" he asked.
"What happened to your performance index over the last four years?" I asked.
"What's a performance index?" he replied.
I pointed to the far right column on the WSIB NEER Firm Summary Statement and said, "This is your performance index." I showed him that ACME's performance index had gone from 0.00 in 2007 and steadily increased to 4.00 in 2010.
I asked him, "Larry, do you know what these numbers mean?"
"Haven't a clue," he responded.
"Look here at the far right column," I explained. "In 2007, ACME's index was 0.00 and, here below in the Refund/Surcharge box, WSIB let you know that they owed you $2,300. In 2008, ACME's index was 0.01, and WSIB owed you $2,000. Then in 2009, with a score of 1.32, things changed; you owed them $1,000. In 2010, ACME posted an index of 4.0. Larry, as far as the performance index goes, higher is not better. Do you have any idea what your next surcharge will be?"
I continued: "Next year, on September 30, 2011, WSIB will be asking you for a cheque for $25,000."
What you need to know
The vignette above is really not that uncommon. Most senior managers have no idea how to read or understand their WSIB statements.
There are three types of insurance rating programs under the WSIB: the Merit Adjusted Premium Program (MAP), the CAD-7 program and the NEER program. I will focus on the NEER program and the NEER quarterly reports, since these apply to most manufacturers in the province.
WSIB slots every company into a rate group, and a premium rate is established annually. Each quarter, the WSIB sends employers a review of all of their claims going back over three years of accident history, summarizing the information primarily in two forms: the claim cost statement and the firm summary statement.
The Firm Summary Statement
The WSIB has a window of three years to assign a lifetime of costs to any particular claim. (Note: At the time of writing, WSIB proposed to increase this window to four years.)
The Firm Summary Statement is comprised of two tables:
Table one shows four accident years and the associated accident year's annual premiums paid, as well as things called "cost factors," "expected costs," "NEER costs," "rating factors" and "performance indexes."
NEER costs are the costs for accidents that have occurred in your company in a particular accident year — so NEER costs mean YOUR COMPANY'S COSTS. Expected costs are the costs that WSIB has estimated your company would incur in a particular accident year. The performance index is simply the NEER costs divided by the expected costs. A performance index of less than 1.0 means that your company is performing better than other companies in the same rate group, and you can expect a refund. A performance index of exactly 1.0 means that your company is performing at the average of other companies in your rate group, and you should not expect a refund or a surcharge. A performance index above 1.0 means that your company is performing worse than others in the rate group, and you should expect a surcharge.
Table two is labelled "Refund/Surcharge Calculation." This table shows three accident years, and indicates whether there is a surcharge or a refund for each year. The surcharges and refunds are added together, and a total surcharge or total refund is calculated.
The most important thing for business owners to look at every quarter is the performance index. Not only is it a quick indicator as to whether a refund or surcharge can be expected, it shows how your company compares to other companies in the same rate group, and it is also used by the WSIB as an indicator for poorly performing companies. A high performance index is one of the triggers for the dreaded Workwell Audit, which is an audit imposed on companies that have consistently poor safety records. Employers can be assessed additional premium increases if they fail a Workwell Audit — and 90 per cent of companies fail their first audit.
If you see a performance index of 1.0 or more, this should prompt you to start doing some claim investigating, and the first place to start the investigation is with the Claim Cost Statement.
The Claim Cost Statement
The Claim Cost Statement looks a little busier than the Firm Summary Statement, but is decipherable once you know the jargon. Individual claims are grouped into three accident years, and there is a column for each claim associated with a claim number, individual worker's names, accident dates, claim types, ages of claim, past awards, discounted past awards,
projected future costs, overhead costs and limited claim costs.
The three most important columns to look at are:
1. Discounted Past Awards - This strangely-titled column simply means the amount of money WSIB has charged you for a particular claim, and includes loss of earnings benefits paid, health care costs paid and non-economic losses paid.
2. Projected Future Costs - This column is the amount of money that the WSIB has charged you for the expected lifetime of the claim.
3. Overhead - This is WSIB's overhead; the overhead to pay for those 4,000 employees.
By adding the costs of Discounted Past Awards, Projected Future Costs and Overhead together, you get the total lifetime cost of the claim. Now this lifetime cost estimate changes as more information is acquired, and the WSIB has three accident years to refine it (soon-to-be four years). Not surprisingly, the cost refinements rarely show a decrease over the three-year window.
Most owners are shocked to realize that Projected Future Costs and Overhead are often much higher amounts than the actual incurred cost of the injury (the Discounted Past Awards).
Projected Future Costs are typically triggered if a claim results in lost time of five days or more. Projected Future Costs are not calculated for claims with Health Care Only Benefits. Of course, as the Projected Future Costs increase, so do the Overhead Costs. For this reason, every company must have an aggressive Return-To-Work program. Keeping lost-time claims below five days can dramatically reduce your costs.
Limits on claims
A limit is placed on the maximum cost, which can be used by NEER for any one claim. Beginning with the 2006 accident year, the per-claim-limit is equal to five times the maximum insurable earnings. For 2010, the maximum claim limit was $388,000. A further limit is placed on the firm's total claims costs for a given accident year. The firm cost limit is equal to four times the expected claims costs.
Reading and understanding WSIB quarterly statements is essential for all business owners and managers. Make it a point to review those WSIB quarterly statements and make sure that the information is accurate. As an absolute minimum, make sure you look at the performance index; it's a small number, but paying attention to it can bring in big savings.
One of the most significant WSIB cost drivers for any company is the projected future costs, which are triggered by claims having significant lost time injuries. As projected future costs increase, so do the overhead costs. All companies need to have an effective and well-communicated Return to Work Program. The time and resources put into the Return to Work program will pay huge dividends.
If you already have an effective health and safety program, maybe you don't have to worry about WSIB costs and WSIB Workwell Audits. The reality is, however, most companies are not aware of the elements of a Workwell Audit, and will be taken quite off-guard by what the WSIB considers to be an adequate health and safety program.
My advice is to have a Workwell GAP analysis done, even if you don't feel that you might be targeted. By using the Workwell Audit elements as a framework for your health and safety program, not only will you ensure that you are prepared for an audit, but properly implemented, you also have a good chance of preventing accidents from happening in the first place.
Graham Chevreau, B.Sc., CRSP, C. Chem., is the principal of Chevreau Consulting Limited (www.chevreau.ca), a health and safety consulting and training firm based in Waterloo, Ont. He can be reached at (519) 635-0574 or firstname.lastname@example.org.