In this entry, we overview Chapter 4 of the Arthurs Report, which deals with the recommended principles and processes related to premium rate setting by the WSIB.
At the core of his recommendations in this respect is the notion that what is required in rate setting is more reliance on actuarial experts having the discipline to stick to the funding strategy and less lobbying and political interference in the rate setting process.
According to Arthurs:
“Rate setting, in other words, is the Achilles’ heel of any funding strategy. No strategy, however well considered, will succeed if rate setting is not driven by the achievement of strategic objectives, executed to the highest professional standards, perceived as transparent and intelligible by the employers that pay the premium rates, sufficiently stable to allow them (and the WSIB) to plan their affairs; and conducted with integrity and determination.”
“To put the matter succinctly: as long as the funding strategy drives rate setting, the strategy is very likely to succeed, but if rate setting is influenced by other considerations, there is a serious risk that the funding strategy will fail.”
Arthurs’ suggested principles and processes with respect to premium rate setting seek to address these concerns. They are fairly well encapsulated in the ultimate recommendations he makes in this respect.
The Call for Sound Technical Analysis, Transparency and Intelligibility in Rate Setting
Recommendations 4-1 and 4-2 address the need for greater actuarial expertise in rate setting and the need for more transparency in the process:
Rejection of the Notion that Rates should be “Affordable”
It is significant that Arthurs specifically rejects the notion that premium rates should be set so as to make them “affordable” to employers. And he states that concerns about affordability of premiums should be raised as a political question with the government, not an administrative one before the WSIB. As Arthurs states:
“Insurance costs what it costs. If employers do not want to pay what it costs, they should address their concerns not to the WSIB but to the Ontario legislature, the body that designed the insurance “product” that they are required to buy. Since they can hardly argue that they are entitled to receive that “product” -coverage sufficient to pay the benefits provided under the WSIA – for less than it costs, they are likely to propose that the legislature should adopt a less expensive benefit package. Of course, if they do so, they will quite properly have to debate the point with workers’ groups that maintain with equal vigour that WSIB benefits should be higher, not lower. The political marketplace … should be conducted at Queens Park, not on Front Street.”
This thinking is reflected in Recommendation 4-3:
A Call for an End to Lobbying and Government Interference in Rate Setting
Recommendations 4-4 to 4-6 address these points and reinforce the notion that rate setting should be professional, disciplined and transparent.
Arthurs does recognize that there may be circumstances where the greater public good requires government intervention in rate setting. However, his recommendations are to the effect that in such exceptional circumstances “government should be prepared to intervene overtly, to publicly justify its intervention by reference to those circumstances, and to accept responsibility for depriving the WSIB of the revenue it needs.”
To eliminate the opportunity for lobbying, Arthurs suggests that the WSIB abandon its practice of announcing a preliminary average premium rate (which is followed by a window of time during which lobbying over the rate can occur) before setting a final average premium rate.
In our next entry we will look at Arthurs’ recommendations with respect to rate groups, the apportionment of financial responsibility among employers and employer incentives and experience rating.