October 07, 2016
Ms. Elizabeth Witmer, Chair
Workplace Safety & Insurance Board
200 Front Street West
Toronto ON M5V 3J1and
Mr. Tom Teahen, President & CEO
Workplace Safety & Insurance Board
200 Front Street West
Toronto ON M5V 3J1
Dear Ms. Witmer and Mr. Teahen:
Re: Construction Executive Officer Classification:
A premium rate commensurate with the insurance risk
An introductory comment – Bill 119 and the distinctiveness of the construction sector
On behalf of the Mechanical Contractors’ Association of Ontario [“MCAO”], let me express our appreciation for continuing the important dialogue on the fairest and most effective classification of construction sector executive officers. Your direct and ongoing engagement in this element of the ongoing Rate Framework Review [“RFR”] project we believe will prove instrumental in achieving a policy result addressing the mutual and intersecting interests of the WSIB, MCAO members and the construction sector province wide.
While this issue was discussed briefly at the September 24, 2016 Construction Industry Advisory Committee [“CIAC”] meeting, please accept this letter as an adjunct to the brief oral argument I presented at that time.
The MCAO was a strong, early and public supporter of the government’s Bill 119, which received Royal Assent November 27, 2008. We all know of course the policy objects being sought by the bill, along with the WSIB’s post-royal-assent administrative engagement, which included the development of a copious number of complex policies essential to an effective start-up. Bill 119 continued a longstanding policy trend driving the establishment of a distinctive set of rules governing construction labour relationships.
Of course, the Workplace Safety & Insurance Act, S.O.1997, c. 16, Sch. A., as amended [“WSIA”], along with many WSIB policies continue that trend. The reasons for this distinctive treatment of construction statutory, regulatory and policy exposures are self-evident and will not be catalogued in this communication. It is sufficient to note that construction is integrally different than most if not all other sectors, like chalk-and-cheese if you will, with this uniqueness reflected in policy/regulatory/statutory treatment of the construction sector. Bill 119 overall, and the specific treatment of the coverage of non-exempt construction executive officers (WSIA, s. 12.2(1), para. 4; O.R. 47/09, s. 1.(1), para. 1), respects that distinctiveness.
MCAO requested distinctive treatment for non-exempt executive officers right out of the gate
During the committee hearings addressing Bill 119, MCAO made clear its support for the policy objectives of Bill 119. On November 18, 2008, MCAO appeared before the Standing Committee on Social Policy. While supporting the primary objects of the bill, MCAO outlined its general opposition to the inclusion of executive officers not exposed to construction work-site risks (the full Hansard for the Committee’s hearing for November 18, 2016 is forwarded with this letter and the MCAO presentation is excerpted in its entirety at Appendix A):
While the MCAO supports the principle of full coverage for those exposed to construction work-site risks and lauds the efforts of the government to tackle the underground economy, there is no policy reason to extend mandatory coverage to executive officers not exposed to construction work-site hazards.
For our 360 members, this provision will increase our overall premiums by as much as 10% to 11%, with no corresponding increase in our insurance risk. Worse, the impact will be disproportionate, weighing more heavily on the small and medium-sized enterprises.
Consider these two simple illustrations. First, a very large constructor, with a $25-million payroll and four executive officers: That company will pay approximately $1.6 million in premiums to the WSIB and will see their premiums increase by $18,500 as a result of Bill 119. The mandatory executive officer coverage will increase the aggregate premium of that large enterprise by approximately 1%. Contrast that with a smaller corporation with a $1-million payroll and 18 employees, paying $67,000 in WSIB premiums. If that company had two executive officers, which is likely, that would increase the aggregate premium of that company by $9,294, which would increase the overall Workplace Safety and Insurance Board premium by 14%, even though the WSIB insurance risk remains essentially the same.
While MCAO preferred then (and now) that executive officers not exposed to construction risks should be excluded from mandatory coverage (and treated in precisely the same manner as any other executive officer in any other sector), I presented a reasonable alternative proposition to the Committee:
A preferred solution for executive officers not exposed to construction risk is to leave the coverage optional. However, as introduced and suggested by COCA yesterday, if the government is steadfast in its resolve to compel mandatory coverage for all executive officers, at risk or not, then we urge that these individuals be assigned a premium that is commensurate with the risk they represent.
Ever since, MCAO has consistently advocated a position aligned with that theme.
How is coverage addressed for executive officers in other non-construction sectors?
For all sectors other than construction, executive officers are statutorily excluded from coverage. The “. . . insurance plan does not apply to workers who are executive officers of a corporation” (WSIA, s. 11.(2)).
It is important to recognize that this statutory exclusion applies to all non-construction executive officers, whether or not the officer is exposed to the hazards/risks of the respective industry on a daily basis or not.
On a completely volunteer basis, a “corporation that carries on business” . . . “other than construction, may apply to the Board for a declaration that an executive officer of the corporation is deemed to be a worker to whom the insurance plan applies” (WSIA, s. 12.(3)). Non-exempt construction executive officers not exposed to a construction risk have no similar option. Such executive officers are subject to compulsory coverage.
The request for a classification for non-exempt construction executive officers is long-standing
As already shown, MCAO support for Bill 119 turned in part, at a minimum, on the establishment of a separate rate classification for construction non-exempt executive officers with a premium set at a level commensurate with the insurance risk.
In a letter of April 1, 2010, the Construction Industry WSIB Task Force [“CITF”] (now named the Construction Employers Council on WSIB Health and Safety and Prevention [“CEC”]), wrote to the WSIB affirming this request (the entire letter is attached at Appendix B):
First, notwithstanding an agreement from the WSIB at its most senior levels that a new rate group within the construction cluster for executive officers will be struck, no specific policy has yet been developed. As you know, we expect a new rate group with a premium commensurate with the true insurance risk of executive officers. CITF support for moving forward is contingent on such a policy being developed and presented to the CITF for ratification.
From the outset of the establishment of the Construction Industry Advisory Committee [“CIAC”], this issue was on the agenda. Notwithstanding an earlier verbal commitment (as is reflected in the April 1, 2010 CITF letter) to accede to the construction request (a premium rate commensurate with the insurance risk), it was later discovered that WSIB support was wavering. This issue formed the basis for several high-level discussions within the first 18 months of the then, recently formed CIAC. I participated in all of those discussions and recall them with some vividness. I should add that the constructive manner in which this issue was addressed in the early days of the CIAC affirmed the importance and raison d'être of the CIAC.
Commencing in late 2011, President Marshall expressed a general agreement with the concept of a distinct premium rate for construction sector non-exempt executive officers. The dangling-thread was the establishment the actual premium rate. The construction position was unwavering – the premium should reflect the insurance risk of construction sector non-exempt executive officers. The administration initially proposed that the average construction premium rate be used as the proxy for the risk, a suggestion that was summarily rejected by the industry members of the CIAC.
The discussion continued in a February 22, 2012 CIAC meeting when the administration floated the proposition of a premium set at $0.64. The rationale was unconvincing (there was none), with the (then) WSIB Chair expressing his understanding that the $0.64 proposition “is arbitrary” (the quotation being reflected in my notes of the meeting). A full discussion ensued. I proposed that the Board already had a longstanding institutional understanding of the actual insurance risk presented by construction sector non-exempt executive officers, and that is the risk as reflected in the Class I, Rate Group (“RG”) 956, Legal and Financial Services premium. President Marshall suggested that the discussion “was very helpful” and committed the Board to review the issue afresh.
This further review of course culminated with the establishment of Class G, RG 755, with a rate set then (and now) at the precise same rate as RG 956. This result was, and remains perfectly acceptable to MCAO.
Is the RG 755 premium still reflective of the insurance risk for construction sector non-exempt executive officers?
All indicators would suggest the rate is set properly, and as suggested in 2011/12, the performance of RG 755 mirrors that of the performance of RG 956. From the following two charts excerpted from the “2017 Premium Rates Backgrounder” for RGs 755 and 956, the performance is essentially identical:
RG 755: Construction Non-exempt Executive Officers
RG 956: Legal and Financial Services
The WSIB 2016 Premium Rate Manual (“PRM”) shows that RG 755 and RG 956 share the same lost time injury rate at 0.08%, with RG 755 experiencing a slightly better total injury rate at 0.21% versus the RG 956 0.23% (PRM, pp. 431 and 521). Each share almost identical costs per claim at $11,261 for RG 755 and $11,249 for RG 956 (PRM, pp. 434 and 528). The relevant pages from the 2016 PRM are reproduced at Appendix C.
From this it can be objectively concluded that presently, construction non-exempt executive officers are being assessed a premium commensurate with the insurance risk, and even though according to the PRM the RG 755 rate was “made equal to that of rate group 956” (PRM, p. 434), by all accounts, this reflects the risk.
Interestingly, if the WSIB did/does set the premium rate at the requisite sector rate, the Board gains a substantial windfall. Relying on the 2016 PRM data, presently the premiums for RG 755 are $1,074,117 and claim costs are $337,830. Applying the average 2016 construction premium, the aggregate premium for RG 755 payroll would balloon upwards to $32,888,461 with the costs remaining constant at $337,830, driving an unconscionable level of over-assessment approaching $32 million.
While during the Rate Framework Review [“RFR”] consultation it has been suggested that this will “come out in the wash” we respectfully suggest otherwise. First, a very convincing point. The segregation of this risk already and absolutely ensures a fair end-point premium rate for this risk. Second, the RFR rate setting protocol will not mitigate the over-assessment premium risk. One need not investigate this beyond the WSIB RFR Paper 3: The Proposed Preliminary Rate Framework section on actuarial predictability (commencing at p. 43), to understand that for the vast majority of construction employers, due to the limits described, performance will not mitigate the increased premium assessed. In other words, and to continue the idiom just introduced, one would need to launder a massive load of clothes for this inequity to be cleansed. Most construction employers do not have that much wash (i.e., aggregate payroll). For the majority of construction employers, no matter how many times washed, these clothes will not come clean.
A concluding point
We end where we started before the Standing Committee on November 27, 2008. The premium rate for non-exempt construction executive officers must reflect the insurance risk. The example presented to the Standing Committee eight years ago still holds. The arguments presented to the Board in 2010, 2011 & 2012, still hold. The accrued performance since Bill 119 implementation has proven our point.
Again, we appreciate your ongoing review of this important issue and are confident that upon appropriate reflection, the Board will rest at the same conclusion we have reached - non-exempt construction executive officers should continue to be assessed under a distinct classification group and assessed a premium which reflects the insurance risk.
I am pleased to continue our dialogue on this issue.
 Based on $511,484,632 insurable earnings and a premium rate of $0.21.
 Based on 30 claims with a cost per claim of $11,261.