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Auditor General of Ontario outlines his review of the Workplace Safety & Insurance Board’s Unfunded Liability

Published on January 13, 2010

Dear CME Member:

 

In his report released December 7, 2009, the Auditor General of Ontario outlines his findings regarding his review of the Workplace Safety & Insurance Board’s (WSIB) Unfunded Liability (UL).

 

Click here to view the 2009 Annual Report of the Office of the Auditor General of Ontario.

 

The following is summary of some of his findings:

 

  • As of December 2008, the WSIB’s funding ratio (assets against liabilities) stood at 53.5 per cent.
  • The Board’s UL almost doubled in size from $5.9 billion on December 31, 2006 to $11.5 billion as of December 31, 2008 (the highest in the history of the WSIB).
  • There are four key levers which contribute to the rising debt: legislated benefits; coverage (the number of employers covered); premium rates; and investments.
  • The AG believes employers should pay higher premiums and there should be mandatory coverage for more employers (72.6 per cent of employers are covered in Ontario). Ontario’s coverage rate remains among the lowest in Canada.
  • Employers in Ontario are charged the highest average premium rates of any province.
  • At the same time, AG says workers should maybe see a reduction in Loss Of Earnings benefits, return to work sooner and get less in the way of pain medications.
  • The new target date for paying off the UFL is 2022
  • Investment losses exceeded $4 billion in the past two years while operating deficits averaged $900 million a year over the past seven years, leaving the WSIB with an $11.5 B UFL by the end of 2008; the AG thinks this deficit should be added directly to the government's books.
  • The legislated changes announced by the government in 2007 budget introduced a temporary indexing factor that increased some workers’ benefits for 3 years (2.5 per cent increase each year beginning 2007, 2008 and 2009). This government’s actions immediately added $750 million to the UL as reported by the WSIB in its December 31, 2007 financial statements.
  • A study on duration, conducted by the Institute for Work and Health, cited three primary factors for the increased duration of claims: legislation; health care; and workplace behaviour.
  • Health care costs represented 16 per cent of total benefit costs between 1999 and 2008. Health care costs themselves rose from $238 million in 1998 to $619 million in 2008,
  • The AG attributes the high UFL to investment losses, but also to “the desire of governments and the WSIB to ‘satisfy all the stakeholders’”
  • The AG says, "Both the WSIB and the government may have to commit to a different strategy with respect to the setting of premium rates and benefits if the WSIB is to be able to eliminate the unfunded liability within a reasonable period" and "Eliminating or reducing the unfunded liability requires the interaction of four key levers – legislated benefits, (expanding) coverage (to industries like financial services), (raising) premium rates and investments – to work effectively in tandem."
  • The AG disagrees with Mahoney’s statement that the UFL should not be cause for concern because there is no danger of the WSIB going out of business or failing to pay benefits; the AG says using investments to fund current operations “is not financially sustainable".
  • Since investment losses are not expected to continue into the future, the two key factors impacting financial viability remain: the sufficiency of premium rates to cover currently costs and pay down the UL; and legislated changes adding additional unfunded costs to the system.
  • The Chair would not say what recommendations he will make to the government in February with respect to benefits and premiums; he still thinks they’re in good shape, relying on an average 7 per cent investment return, a 7 per cent annual reduction in injury claims and improved RTW outcomes pulling them through.
  • The AG, in his press release, also indicated that the government should formally re-evaluate its current policy of excluding the WSIB from the province’s financial statements and that including the WSIB “could enhance government accountability and transparency.” If included in the province’s financial statements, that figure would raise Ontario’s reported accumulated deficit by more than 10 per cent. The WSIB does not appear on the province’s books because it is classified as a trust under administration.
  • Ontarians might have a truer picture of the provincial deficit if the government included the Workplace Safety and Insurance Board (WSIB) in its official financial results. The WSIB currently has an unfunded liability—the difference between its assets and its obligations—of $11.5 billion.
  • However, given the size of the unfunded liability, McCarter questioned whether the government “is not running an insurance business through the WSIB rather than administering a true trust. Excluding the WSIB from the province’s books also may convey the message that the government has no role to play in addressing the WSIB’s financial challenges.”

 

Found in: auditor general workplace safety WSIB unfunded liability

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