An employer’s experience modification rating, also called E-mods or EMR, is determined by dividing a company’s actual workers’ comp claim losses by the expected losses for the company’s specific occupations. The EMR plays a vital role in determining the premium a company pays.
The State of California and other public authorities, major utilities, private project owners and prime contractors for years have used the rating as a one-size-fits-all way to gauge a contractor’s safety record. Three consecutive years of EMR are usually considered, excluding the most recent year. Some treat a company with one EMR blip as a contracting untouchable.
EMRs are sometimes treated as vital to prequalification of a contractor to bid on a project. One sign of that trend occurred this year when the National Council on Compensation Insurance (NCCI) – the insurer-owned workers’ comp rate-making entity covering most states – added to its published material a boilerplate disclaimer against using EMRs to prequalify employers.
This new language is designed to raise awareness on this important topic and to reinforce the intended purpose of an experience rating worksheet for using the rate only to adjust the premium, according to Kathy Antonello, NCCI’s chief actuary. “This is consistent with the information we have provided to the public and the industry that it’s not appropriate to use E-mods to compare the relative safety of employers. The E-mod should be used for its intended purpose.”
A more comprehensive evaluation of safety performance usually includes other data and information – such as the reason for the higher EMR, style of the safety program, qualifications of the safety managers or U.S. Occupational Safety and Health Administration (OSHA) data used to calculate rate of injuries per hours worked – a different type of statistic.
Changing the deeply entrenched practice of using EMRs to prequalify contractors may not be as simple as writing a few articles and publishing a disclaimer, however. Companies that understand the value placed by owners and prime contractors on safety know that a low EMR impresses them as much as do held-down costs. “It will take a generation” to get out of the habit of using EMRs as a quick take on a company’s safety record, says one industrial construction contractor’s safety director. “There are union shop stewards who talk about EMRs on a regular basis.”
At a recent construction conference of the International Risk Management Institute, where Antonello, in a presentation, repeated cautions against using EMRs to prequalify, an insurance director at a large construction firm turned to someone sitting near him and said, “We use our EMR to compete all the time.”
Smaller contractors are the biggest losers in the “EMR equals safety” mindset, insurance brokers report. Fewer hours worked maximizes the effect of a single claim.
“Setting these strict experience mod-factor thresholds can discriminate against smaller or midsized companies, disqualifying them from bidding on projects, despite their having an excellent safety and injury history,” wrote Sonja Guenther, a workers’ compensation specialist at Denver financial consultant IMA Financial Group, in a recent report on the issue. Larger contractors, with the help of consultants, can find ways to drive down their EMR that have little if anything to do with their actual safety record, critics add.