Experience ratings detrimental to workers and employers

Legal expert says claims process has become more adversarial over past few decades

Experience ratings detrimental to workers and employers

Experience ratings are detrimental to both workers and employers, according to Marion Endicott.

Endicott worked at the Injured Workers Community Clinic (IWC) in Ontario for 40 years as a legal worker, and she recently spoke at the XXII World Congress on Health and Safety at Work about workers’ compensation:

“In my 40 years of work, I found this a powerful experience of being intimately knowledgeable about people’s experience with workers’ compensation because I handled their claims, represented them and engaged with the system itself.”

Ontario Legal Aid (OLA) was founded in 1998 as a successor to the Ontario Legal Aid Plan (OLAP). OLA is a publicly-funded non-profit corporation. There are a total of 76 legal clinics throughout the province.

The Ontario legal aid system provides assistance to those from less affluent backgrounds, who typically cannot afford lawyers, on fundamental issues such as dealing with landlords, compensation, welfare issues, etc. free of charge.

Throughout her time there, Endicott mainly assisted injured workers.

Endicott says that in her experience, one of the problems she faced was often that the employer was fighting the compensation claim. Or that workers had not understood the system, or were told not to claim, and then their condition got worse.

Things have evolved since Endicott started her role – and not necessarily for the better.

“When I first started working in the legal clinic, which was in the mid-1970s, employers were not reticent [to file claims]. They would help the employee fill in the form, they would encourage them to put in a claim – not in all case, but generally.”

A big shift occurred in the mid-1980s and really intensified into the 1990s:

“You would just about always see an employer at an appeal, and they would be contesting the worker’s claim,” says Endicott.

And she says that experience ratings are partly to blame for this shift.

Surcharges and rebates

So what is experience rating? It is the practice of adjusting an employer’s premium (or assessment) rate based on the cost of its claims.

This means that employers are provided a financial incentive to prevent or reduce accidents in the workplace. Employers are given rebates or surcharges based on the number of claims they are having.

In the 1980s, a researcher named Paul Wyler did a study of the compensation system which the aim of finding ways to improve it. Wyler suggested the implementation of “experience rating” which he had come across in the U.S.

Wyler believed it to be a way to incentivize employers to improve health and safety.

Nevertheless, Endicott says that “he recognized that it could be that employers would then actually get into this thing called claims management rather than health and safety improvement.”

A study was done alongside the implementation of experience rating to see its effects – and to see if claim suppression would happen.

Later research by the WSIB found that over a quarter of employers openly admitted that they were suppressing claims in order to avoid surcharges or to get rebates, says Endicott.

She says that with experiencing ratings, “the pressure on the employer to do the wrong thing [is] intense,” notably, she says, for smaller employers.

Claims management

The experience rating system has evolved in Ontario, though the new system put into place still shares similarities with the previous system.

And the issue with relying on a system such as that of experience rating is that “it is based on claims cost, not on actual health and safety conditions. As soon as the worker becomes injured, they’re no longer a worker [but] they become a financial risk that has to be managed,” says Endicott.

“The other thing that happened with this experience rating is that a whole new, private industry grew up of employer representatives,” she says.

Endicott explains that these were outfits that were not necessarily labour or law firms (though sometimes they are attached to law firms) that were set up in order to specifically advise employers on health and safety guidelines.

“Really what they were doing was helping [employers] manage claims,” says Endicott. “They would have advertising about turning experience rating into a profit center for the company – so in other words, using compensation claims to make money […] by generating rebates through claims management.”

“In my view, employers actually became divorced from knowledge about the compensation system. And they even became divorced in a way from what the impact on their employees was,” says Endicott.

Collective liability

In Ontario, the compensation system was set up in 1915 as what is called a “collective liability system.” In essence each group of industries pays a certain rate based on the general hazardousness of the industry.

There are different categories or ‘schedules’ of employers:

Schedule 1 employers operate under the collective liability insurance principle.

Schedule 2 employers (organizations funded by public funds, legislated by the province but self-funded and a number of privately owned businesses involved in federally regulated industries) operate under the experience rating system.

Initially, says Endicott, the compensation system was set up to be a non-adversarial system “whereby employers didn’t have to worry about lawsuits, and would know that one of their employees would be taken care of if they got injured.

It was a financial support to employers from that perspective because didn’t have the variability, the worry of lawsuits. And for workers it was a benefit because have to fight to get their claim, they wouldn’t have to feel that they are doing something bad to their employer to make a claim.”

This universal coverage system is in place in most other Canadian provinces.

Now that it is harder for workers to make claims, there are health and safety consequences such as developing secondary injuries that they wouldn’t have had otherwise “if the worker isn’t getting the medical attention they should.”

Companies not wishing for employees to make claims may find another role for the injured worker such as administrative work for example – more restful work certainly, but the worker is still not getting the medical attention they need meaning their injury could worsen, or they may develop additional injuries. Co-workers may be brought in to cover the injured worker, potentially leading to physical injury or resentment from co-workers.

Endicott also says that the psychological of this system are non-negligible: “As soon as you have an adversarial system, you create psychological trauma.”

She says: “From an employer perspective, bringing in the adversarial system harms them as well. And my view is that if employers could really understand how experience rating works, they wouldn’t want it.”

“The other thing for employers is that experience rating creates a tension in their balance sheets,” says Endicott, due to the variability of experience rating.

Endicott recommends that employers support a flat rate system – with one rate for small employers and another for bigger employers.