Author, Sam Clayton, Vice President, Construction Group, Rancho Mesa Insurance Services, Inc.

Last fall, the federal government passed the $1.2 trillion Infrastructure Investment and Jobs Act to rebuild and modernize America’s roads, bridges, transit, rail, airports, broadband and wastewater infrastructure. With this tsunami of public funds starting to become available, state and local government agencies will require contractors to enter a pre-qualification process in order to bid upcoming projects. Many of these entities will look closely at the contractor’s Experience Modification Rate (EMR or ExMod).

The EMR is a numeric representation of a company’s payroll and claims history, compared to businesses in the same industry or standard industry classification. EMRs create a common baseline for businesses while allowing for a surcharge when employers' claims are worse than expected and credit when employers' claims are better than the industry average. More specifically, companies with an EMR rate of 1.00 are considered to have an average loss experience. Factors greater than 1.00 are considered worse than average, while less than 1.00 are considered better than average.

Pre-Qualification Process

In the highly competitive world of construction bidding, it has become more common that contractors can be precluded from the pre-qualification process due solely to above-average EMRs. This represents an oversight as many companies have strong, well-developed safety programs, yet their EMR is holding them back. Some examples of this are:

• EMRs are lagging factors. They only factor the last three policy periods, not including the current policy period.

• EMRs can include claims that may have been unavoidable and do not represent a lack of safety (i.e. an employee is rear-ended by an uninsured motorist).

• Large severity claims from smaller sized companies can impact the EMR much more negatively than a similar sized claim at a larger firm.

• The effectiveness of claims handling may vary from one insurance company to another, thus impacting certain employers when cases remain open with high reserves.

Rather than placing such a critical importance on the EMR Rate, owners and contractors designing the pre-qualification document should include frequency indicators like incident and DART rate (i.e., days away, restricted or transferred) forms. These measuring tools incorporate current year totals and can provide up to 5 years of historical data. Incident rate calculations indicate how many employees per 100 have been injured under OSHA rules within the specific time period. The DART rate looks at the amount of time an injured employee is away from his or her regular job. Lastly, contractors attempting to become pre-qualified should have the ability to provide a detailed explanation should their EMR exceed 100.

This can include loss data, a summary of the company’s Illness and Injury Prevention Plan (IIPP) and code of safe practices, and more information on what exactly the company is doing to reduce future exposure to loss.

Given the importance of the pre-qualification process and the potential for contractors to be precluded from new opportunities to bid work, we’ve developed a Best Practices approach to assist companies in managing their EMR.

Managing Your EMR With Best Practices

The Best Practices approach to high EMRs includes a total claim physical, safety KPI dashboard, claims advocacy, and implementation of risk management tools.

Total Claim Physical
The total claim physical accurately identifies your company's strengths and weaknesses, and then scores the company against others in the industry. It includes an audit of the EMR, analysis of claim frequency and severity, claim trends and determine root causes, provide quarterly claims reviews, and conduct pre-unit stat meetings.

Safety Key Performance Indicators (KPI) Dashboard
A tool companies can use to strategically manage the underlying components that directly impact the experience modification rate and help project future experience modification deviations.

Claims Advocacy
Utilizing a claims advocate can decrease existing claim costs, reduce excessive reserves, and expedite claim closures, which can reduce the EMR.

Risk Management Tools
Our Risk Management application provides access to safety training materials and tracking, analysis of incidents and OSHA recordkeeping, and monthly risk management workshops and webinars.

For more information on managing your EMR before the pre-qualification process, contact me  at (619) 937-0167 or sclayton@ranchomesa.com.