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We are now at our final entry reviewing the key chapters of the Arthurs Report. We will not be reviewing chapter 9, which comments on a number of matters that Professor Arthurs felt compelled to mention, but which he says fell outside his mandate.

To conclude then, chapter 7 of the Report considers funding occupational diseases, short and sweet.

To contextualize his ultimate recommendations, Arthurs notes that occupational disease claims constitute a rapidly growing number of total claims, up from 6% in 2000 to 10% in 2010. This trend is likely to continue to grow but we cannot say by how much. This presents a particular cost concern since in occupational disease claims, there is a higher percentage of fatalities, which means disease claims typically cost 10 times as much as other claims, often with $400,000 to $600,000 in survivor benefits. Having all this in mind the WSIB has established a $600 million reserve for future costs, which is considered by the experts to be a reasonable mid-range estimate as to future occupational disease costs.

As noted at the end of this blog entry, Arthurs recommends, firstly, to set up a medical/scientific panel to continue to study issues related to occupational diseases and, secondly, to keep the costs of such claims in the WSIB system.

His next recommendation deals with the issue of who pays for occupational disease claims. Here, happily, he recommends that the WSIB continue its current approach of not subjecting long latency diseases to experience rating. Arthurs also proposes that the cost of the reserve fund noted above should be borne by all Schedule 1 employers. However, when it comes to a decision to treat certain diseases as being associated with a particular work process or industry, Arthurs proposes that up until such a decision is made the claims costs should be split between the industry class/sectoral group and all Schedule 1 employers. Thereafter, the costs of such new claims should be assigned to the industry class/sectoral group alone.

Moving on to chapter 8, Arthurs deals with the subject of inflation protection for partially disabled workers.

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In our last entry we reviewed the origins of the Arthurs Report, the WSIB Funding Review which led to it and the current state of the WSIB’s unfunded liability (UFL), which is to the tune of $14.5 billion.

As we noted, the UFL is a serious and pressing problem because it carries with it a risk that at some point in the next 20 years the WSIB will be unable to meet its obligations to injured workers as they come due. As a result of this problem, the Arthurs Report recommends a new funding strategy for the WSIB, which, along with a few related sub-topics, is the subject of this blog entry.

The key recommendations Arthurs makes in respect of the new funding strategy are found in Recommendation 3-1 of the Report, which are set out in the column to the left. We will look at these in more detail below.

Objectives of the Proposed New Funding Strategy for the WSIB

The Arthurs Report lays the foundation for a new funding strategy by setting out a number of objectives.

These include, among others: ensuring that the WSIB can meet its obligations, ensuring that premium rates charged to employers are spent prudently and the WSIB’s being accountable for the "faithful and financially responsible discharge of its statutory mandate". It’s pretty hard to argue with all that.

Related to these goals, Arthurs wishes to see faith restored in the WSIB system by eliminating any actual or perceived risk of its insolvency. A further goal is granting the WSIB "the necessary financial capacity to meet increased costs, whether attributable to legislation, to changes in administration and programs, or to changed external circumstances". Arthurs also sees as an objective diminishing the WSIB's reliance on premium rate revenue and increasing its investment revenue.

Targeted Funding Ratios and Desired “Technical Characteristics”

We saw in our last entry that current WSIB insurance funding ratios (assets to liabilities) are conservatively estimated as being around 50%.

An immediate goal of the suggested new funding strategy is achieving a funding ratio in excess of 60%, beyond which the risk of "tipping" (i.e. insolvency) becomes minimal.

Over the longer term, Arthur's envisages progressing to a "recovery zone" with the funding ratio of 60 to 80% and thereafter moving into a "comfort zone" of 80% and more funding, which he sees as the "functional equivalent of full funding". However, Arthur also wishes to see full funding in the long haul.

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