Premium Rate Guide

A guide to understanding how your workers’ compensation rate is calculated

RATE SETTING PRINCIPLES

Employers pay premiums to fund workers’ compensation insurance. WorkSafeNB determines revenue requirements annually based on the best estimates of the total costs and insurable earnings for the given year.

WorkSafeNB sets premium rates using the following principles:

An employer’s premium rate directly reflects their own safety performance as well as that of their industry. The premium rate is the cost of coverage per $100 of insurable earnings of an employer’s workers.

  • Full-funding - The workers’ compensation cost of any given year is fully funded by that year’s premiums. This means the premiums collected in the year need to cover all current and anticipated future costs for the injured worker claims from employers operating in that year. Only 20% of these costs are paid in the accident year while the other 80% is paid well into the future. It is imperative to secure a worker’s benefits for the lifetime of their claim and avoid passing costs on to future employers.
  • Collective liability - Costs are spread among all employers to maintain a balance between individual employer accountability and collective liability. An employer’s premium rate is not only affected by their own claims’ experience but it also factors in the experience of others in their rate group along with overall provincial trends.
  • Accountability and incentives - Rates vary based on claims experience, so each employer and each industry is accountable for their performance. Employers who pay more than $2,000 in premiums get experience rating discounts or surcharges.

 

CLASSIFICATION AND RATE SETTING STRUCTURE

The classification system used to identify employers with similar business and risk characteristics is the foundation for premium rate setting.

Approximately 15,000 registered New Brunswick employers are classified into:

  • 801 Industries - Employers are classified into industries based on the business they conduct. WorkSafeNB defines industries using the North American Industry Classification System (NAICS). Statistical information on claim costs and insurable earnings is recorded and tracked by employer and by industry.
  • 74 Industry Groups - Industries involved in similar activities having similar risks are combined into industry groups.
  • 19 Rate Groups - To attain a sufficient statistical base, industry groups are consolidated into broader categories referred to as rate groups. Particularly large industry groups can form their own rate group while smaller industry groups are combined on the basis of similar claim experience.

 

The collective claim experience of the rate group has a large influence on premium rates for each employer in the rate group, providing accountability.

WorkSafeNB conducts annual reviews to ensure our classification structure is statistically reliable and aligns with our commitment of fairness to New Brunswick’s employers. The performance of industries and industry groups within a rate group is monitored to ensure trends do not diverge substantially within the rate group.

STEP 1: Determine full cost of benefits and administration

Each year’s assessment rates must generate enough revenue to cover all current and future costs associated with that year’s workplace injuries, including health care, rehabilitation, wage replacement benefits and administration.

STEP 2: Calculate full funding requirement

To ensure the long term security of benefits for injured workers, WorkSafeNB has a long term financial target of 110% funding of assets over liabilities. If below or above this level, we include surcharges or rebates in premium rates over eight years.

STEP 3: Establish provisional average rate

With the full revenue requirement calculated, we establish the provisional average rate per $100 of projected insurable earnings from employers throughout New Brunswick.

STEP 4: Determine rate group basic rate

We look at five years of costs for new accidents and insurable earnings to determine the cost ratio for each rate group. A global loading factor is then applied to each individual rate group cost ratio to determine a basic premium rate for each group.

STEP 5: Set the industry basic rate

The industry basic rate is the rate group’s basic rate subject to any adjustment for safety associations and/or reclassification.

STEP 6: Establish employer experience rate

Employer premiums are adjusted based on their individual performance in comparison to others in their rate group. This adjustment improves employer awareness of the importance of safety in the workplace and encourages employers to help injured workers recover and return to work as soon and as safely as possible.

STEP 7: Calculate employer premiums

An employer’s total yearly premiums are calculated by multiplying their employer net rate by their insurable earnings and dividing that total by $100.

A more detailed breakdown of these seven steps to calculating premium rates follows.

STEP 1: Full cost of benefits and administration

The rate setting process begins by forecasting the total costs of workplace injuries expected to occur in the assessment year, including all future costs associated with these injuries as well as any exposure that may lead to long latency occupational diseases such as cancers.

This involves forecasting costs well into the future based on current economic and claim trends. Some claims can last longer than 30 years, which means we have to account not only for the expected costs in today’s dollars but also for inflation that is expected in the following years.

 

STEP 2: Full funding requirement

Expected costs must be fully funded to ensure the security of benefits to injured workers. Estimates for prior year accidents are revised each year based on the latest trends and factor in any benefit changes arising from legislative and policy amendments.

WorkSafeNB also relies on investment returns to fund benefits paid to injured workers. In recognition of the risks associated with potential market fluctuations, the funding target is 110% of assets over liabilities.

Any shortfall or excess is amortized in the premiums over eight years.

(Shortfall / excess) ÷ 8 = Amount to collect or rebate through premium rates

 

STEP 3: Provisional average rate

Insurable payrolls are forecasted to generate the average premium rate per $100 of insurable earnings. Payrolls are projected for each industry group using industry specific growth factors along with New Brunswick wage inflation forecasts.

Revenue requirement ÷ Projected insurable payroll  x 100 = Provisional average rate

 

STEP 4:

Rate group basic rate

Rate setting then becomes a process of determining rate group rates based on statistical information for the first five of the previous six-year period. A rate group’s five-year payroll and claims cost experience for injuries occurring in that period are combined to produce their direct cost ratio.

The payments for severe injuries are limited to $130,000 and fatalities are also valued at $130,000 when determining rate group costs. This maximum protects rate groups from large shifts in their premium rates due to the random occurrence of expensive claims and does not impact the benefits paid to the injured worker in any way.

5 YR new accident costs ÷ 5 YR insurable payroll = Cost ratio

Cost ratio x Global loading factor = Rate group basic rate

The annual global loading factor is applied to each rate groups’ individual cost ratio to determine the rate group basic rate. Applying the global loading factor ensures premiums will be sufficient to meet required revenue. This process means that administration and occupational health and safety costs are distributed among rate groups proportionally to cost ratios. For most rate groups, that represents an equitable portion of resources allocated to the rate group. However, for the rate group with the lowest cost ratio, it does not yield an adequate amount to cover basic services; in this case a minimum rate that will cover basic services is applied.

 

STEP 5: Industry basic rate

The industry basic rate is the rate group’s basic rate subject to any adjustment for safety associations and/or reclassification.

  • Safety associations – Safety association levies are applied to participating industries. Not all industries within a rate group are subject to such levies.
  • Classification changes – Industries moving to different rate groups are subject to annual transition limits until they reach the new rate group rate. Rate changes are limited to 20%, in addition to the percentage change in the average assessment rate.

The employer basic rate is the industry basic rate subject to a 4% Occupation Health and Safety rebate for federally regulated employers.

 

STEP 6: Employer experience rate

Employers who pay more than $2,000 in premiums before any experience rating rebates and surcharges over a three-year period receive experience rate discounts or surcharges.

Participation Factor

The extent to which an employer participates in experience rating depends on the company’s size – large employers participate fully, medium sized employers participate on a partial basis, and small employers who pay less than $2,000 in premiums over three years are not eligible. This is what we call participation factor.

25 + (Average 3YR premium rates excluding experience rating - $2,000) ÷750 = Participation factor (%)

Employers with $58,250 or more in premiums fully participate and have a participation factor of 100%.

Employer Variance

Claim costs and insurable earnings for workers covered are reviewed over a historical period to establish an employer’s experience record based on accident trends. The first three of the previous four years are used as the experience period. The payments for severe injuries are limited to $65,000 and fatalities are also valued at $65,000 to provide appropriate insurance protection.

The employer variance is the comparison of the employer’s performance to the average of the rate group in which the employer’s industry is categorized. It is determined by comparing the employers cost ratio to the rate group cost ratio.

3YR new accident costs ÷ 3YR insurable payroll = Cost ratio

Employer cost ratio ÷ Rate group cost ration -1 = Employer variance (Higher or lower)

Rate Adjustment

Employers receive a rate adjustment of 1% for each 2.5% variance from their rate group ratio. If an employer has lower than average claim costs experience, they could earn a discount of up to 40% off their industry premium rate. If an employer has higher than average claim costs experience, they could receive a surcharge of up to 80%. These discounts and surcharges are subject to the employer’s participation level. These limits provide reasonable incentive for employers to improve their claims experience through prevention and return to work programs, while ensuring that all employers support the ongoing costs of the workers’ compensation system.

Experience variance ÷ 2.5 = Rate adjustment

Rate adjustment x Participation factor x Basic rate = Experience rate

Basic rate + Experience rate = Net rate

The surcharges collected from employers with above average experience fund the rebates given to employers with below average experience in each rate group. In this way, the experience rating program is revenue neutral. Rate group cost ratios are adjusted to ensure each rate group’s rebates and surcharges are balanced.

 

STEP 7: Employer premiums

To establish employer premiums, the employer net rate is applied to insurable earnings up to the maximum insurable earnings established in a given year for each worker.

Employer net rate x Insurable earnings ÷ $100 = Employer premiums

Paying your premiums

Employers can report payrolls and pay their premiums monthly by enrolling in Monthly Assessments on Actual Payroll (MAAP) program. The online program can help employers improve cash flow and reduce risks associated with underestimating insurable earnings. Employers can also report payroll annually by submitting a Form 100 online through MyServices or by mail and can opt to pay annually or bi-annually (twice a year).

SAFIS - Large Employer Experience Rating Program

Large employers pay more than $500,000 in annual premiums can choose to participate in the Safety Achievement Financial Incentive System (SAFIS), a retrospective program that compares premiums paid to costs incurred. When costs are lower than anticipated, employers receive refunds and when costs are higher than anticipated, they must pay a surcharge. The SAFIS program gives large employers the assurance that they are paying their fair share.

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