Experience rating system continues to disappoint

Experience rating system continues to disappoint

The existing experience rating system (ERS) is a controversial financial incentive program utilized by workers’ compensation boards across the country, which rewards or penalizes employers based on their claims experience relative to other employers.

Under this system, an employer’s premium rate for its industry group is adjusted to reflect the costs of claims made by that employer’s workers. Employers that a have high number of claims are penalized through a surcharge on top of the base premium, while employers with a lower number of claims by their workers are given a discount or rebate on the base premium.

The rationale behind the program is that rebates can entice individual employers to improve workplace health and safety.

Does ERS have a negative impact on health and safety?
It should be understood that a positive experience rating is not, on its face, evidence of a safer workplace. Rebates and surcharges under the ERS are not calculated based on the actual health and safety conditions present at an employer’s workplace, but rather, they merely represent how many reported accidents occurred at the workplace and the associated cost of claims. 

There is no evidence of a direct link between such incentives and improvement in health and safety. On the contrary, anecdotal evidence suggests the opposite, whereby the ERS actually diverts resources away from health and safety programs to better claims management.

Proof of this lies in the fact that some employers that receive regular rebates have high incidents of workplace fatalities, while those that do not receive rebates have lower incidents of worker injuries and better health and safety programs. Further, an employer’s ability to control the frequency of workplace accidents is limited, so a particular accident may not necessarily reflect the underlying risks of injury in the workplace.

ERS also diverts a compensation board’s efforts and resources in the wrong direction. The ERS is a complex program that consumes a large portion of a compensation board’s administrative budget. For example, in the year 2007-2008, the Ontario WSIB spent well over $500 million on the experience-rating program. It can be argued that these funds could be used to make a real difference in promoting health and safety through other means. 

Does ERS have a negative impact on injured workers?
Experience rating programs may also have a negative effect on injured workers. The incentives provided by ERS programs encourage employers to reduce lost-time claims.

As noted above, the reduction often comes from better claims management rather than better health and safety efforts or fewer accidents. This can lead workers to return to work prematurely and risk suffering a subsequent injury or a permanent impairment, which does not benefit the employer or the employee. It appears that ERS encourages conflict in a no-fault system.

Are cost-based incentives the best way to promote health and safety?
Employers investing in their health and safety systems, and in turn in their workers, should certainly be recognized and rewarded for their efforts. However, the existing cost-based ERS is not succeeding in that area.

The program continues to penalize employers that are supportive of their workers. For example, a caring employer who encourages an injured worker to remain home as long as required to gain a full recovery may be penalized through costs for loss of earnings benefits, and an employer that pressures a worker to return to work prematurely may be rewarded by saving lost-time claim costs.

ERS also penalizes honest employers who accurately report all workplace injuries, and rewards those who under-report and/or contract out hazardous work.

In short, experience-rating programs generally punish both honest employers and injured workers, while rewarding those employers who substitute injury prevention with effective claims management.

It must be understood that the best way to reduce worker injuries and insurance premiums is through an effective health and safety management program. The existing ERS programs across the country do not appear to recognize or support employer efforts in this regard, and therefore, continue to disappoint.

Goldie Bassi is an associate lawyer at Gowlings, LLP. You may contact her at [email protected].