Author, Casey Craig, Account Executive, Rancho Mesa Insurance Services, Inc.

One of the biggest concerns for contractors is their Experience Modification Rating (EMR). If your EMR exceeds 1.00 or 1.25, contractors can be removed from bid lists and premiums can escalate quickly. Most decision makers have little idea what factors contribute to the EMR and just how claims can impact them.

All construction companies are assigned class codes that best define their operations and those class codes have expected loss rates associated with them. The more losses that occur per $100 of payroll for that class code, the larger the expected loss rate will be. So, an electrician with a much lower expected loss rate than a roofing contractor will have each claim impact their EMR more. These are variables that can have a significant impact on your company’s EMR. The variable that fluctuates amongst each company is the amount of payroll they develop in each class code. The more payroll generated, the lower your best possible EMR can be.

Consequently, as a company’s best possible EMR decreases, the Primary Threshold increases. The Primary Threshold is a cap or threshold unique to each company. The higher the primary threshold, the less that any one claim can impact your EMR. For example, a painting contractor using the 5474 class code and averaging $200,000 a year in payroll will have a best possible EMR of 83 and primary threshold of only $8,500. Each claim has the potential of contributing 40 points to their EMR. While another painter that averages $10,000,000 in payroll will have a best possible EMR of 41 and primary threshold of $49,000. Thus, the maximum any one claim can impact the company with higher payroll is just 5 points.

This certainly is a drastic difference but it makes sense as the larger company has more employees which leads to more exposure and more expected losses. The component that most companies do not know well enough is that for each company in the examples above, the WCIRB penalizes the exact same for any claim that exceeds your primary threshold. So, for the smaller company, an $8,500 claim is worth 40 points to their EMR, a $1,000,000 claim is worth the exact same amount. And, the same for the larger company with a $49,000 claim worth 5 points but any claim dollars in excess of that will not impact the EMR.

Taking this information into account, we urge our clients to focus on mitigating claims before they happen as well as doing their best to reduce contributing factors such as temporary disability. Having your carrier pay for your employees missed time leads to your EMR increasing and your premiums inevitably being higher than you would like.

Understanding and implementing a return-to-work program is extremely beneficial to your company and leads to you saving money over time. Working with your broker to better understand how to properly handle claims and making sure you are doing everything possible to keep your EMR as low as possible is vital to your company’s profitability and is very much in your control.

Everyone wants a better EMR and lower premiums but the elite contractors are active in not only preventing claims from happening but understanding how important it is to keep their employees at the workplace, or at the very least, off the couch at home.

If you would like to learn more about your firm’s primary threshold or how it is impacting your company, please do not hesitate to reach out to me directly at ccraig@ranchomesa.com or call me at (619) 438-6900.