Capitalization of Claims
Effective date: May 1, 2010
Application: Long-term earnings replacement claims
Policy subject: Employer accounts – Claims costs adjustments and cost relief
To establish the guidelines to capitalize a claim receiving long-term earnings replacement.
Capitalization means funds calculated and set aside to pay future wage loss costs for a worker with permanent work restrictions who is eligible for long-term earnings replacement until the age of sixty-five. Medical or rehabilitation costs are not capitalized.
- In accordance with Section 116(1) of The Workers’ Compensation Act, 2013 (the “Act”), the Workers' Compensation Board (WCB) will maintain an adequate injury fund so that employers are not unfairly burdened in future years with injuries expected to incur long-term earnings replacement.
- In accordance with Section 121 of the Act, the employer may be liable for an additional levy where an employer’s total claim cost is greater than the average cost within the same industry.
- Section 139 of the Act authorizes the WCB to adopt a system of merit rating. Under that authority, the WCB established the Experience Rating Program, which adjusts premium rates to reflect an employer’s claims cost experience.
- A worker with a permanent functional impairment will be eligible for long-term earnings replacement (LTER) when the medical condition has stabilized, the vocational rehabilitation process is completed, and a loss of earning capacity exists.
- To reduce the long-term effects of a claim on the employer’s cost experience and to ensure that the WCB is financially viable in the future, the WCB may capitalize a LTER claim that is expected to continue until the injured worker has reached age 65.
- When a claim is capitalized, the employer’s cost experience will be charged with the net present value of the future earnings replacement required for the duration of the claim, to age 65. This amount will reflect total earnings replacement payments that the injured worker is expected to receive.
- The capitalized amount will be included in the Experience Rating calculation for employers in the Advanced Program. Policy POL 27/2016, Experience Rating Program – Discounts or Surcharges, will apply.
- For premium rate setting purposes, the capitalized amounts will be included in the year in which they were applied. The amounts will be used to calculate the premium rates for the industry in which the employer is classified.
- Once LTER has been established, annual verification of earnings will be completed. POL 07/2016, Earnings Verification, will apply. If the LTER is adjusted on the basis of a review, the capitalization may also be adjusted.