As I wrote in Part 1, "Use And Misuse Of EMR In Construction As Qualifier For New Business" I read another recent article arguing against the use of the Emod in construction as a qualifier for new business. Although I tend to agree with this point of view, I do have thoughts about this subject for the benefit of a general contractor or some other company who does use experience mods as a hiring qualifier.
EMR In Construction: How High Should A GC Go?
We know of a general contractor who, upon realizing that this practice can unfairly discriminate against some subcontractors with very good safety records, changed his qualifying threshold from below 1.00 to 1.90. My first thought was that a 1.90 is a real overreaction to the problem. And I, more so than just about anybody, have 1) lots of experience with EMR errors that inflate EMods and 2) great sympathy for companies "discriminated" against by this EMR in construction practice of excluding bids with experience mods over a 1.00 (or some other threshold).
A 1.20 EMR Is Pretty Serious
To put this in perspective, take the law in Tennessee regarding experience mods of 1.20 or more. If you are one of these unfortunate businesses, your NCCI Experience mod worksheet will have the following note: "The Tennessee Code.....requires every public or private employer.....to establish and administer a safety committee in accordance with rules adopted pursuant to.....if the employer has an experience modification rate equal to or greater than 1.2" So, at the 1.20 level the state of TN is concerned enough to start getting "involved" with your safety practices.
A 1.90 EMR Is Really Bad
You don't have to understand the EMR algorithm at an expert level. But, do understand that it is increasingly more difficult to move away from a 1.00 (either lower or higher) the farther away from 1.00 you get. To go from a 1.45 to a 1.90 requires much more claim activity that what it would take to go from a 1.00 to a 1.45. This is because there are mechanisms in place to slow down movement away from a 1.00. Decreases in your mod become increasingly difficult the better your claims experience becomes. Likewise, there are mechanisms to slow down increases in your mod the worse your claims experience gets. This makes sense. You can't have an experience modification rate of zero and pay your insurance carrier nothing for your work comp insurance. Likewise, they don't want you to have a mod of 10.00, pay 10 times manual premium and go out of business as a result. No need to get more technical than that. I'm sure you get the point. And, to reiterate, a 1.90 is really bad.
However, if you review EMRs in construction and everything else about a proposal looks great and the experience mod is close to where you'd like to see it, it is probably a good to investigate and see if there are some mitigating circumstances. Or, something that a work comp EMR audit could uncover. One example many; are there claims with anticipated subrogation? These claims:
Are the fault of some 3rd party
The insurance company anticipates recouping some or all of the claim expense
The claim/s will eventually be removed from the experience mod
There could also just be mistakes in the rating data reporting causing the trouble; especially with an EMR in construction. It would probably take the assistance of a work comp audit firm like ours, though, that has the expertise to both find and correct these errors.
Conclusion
Finally, I just want to make sure you understand a couple things. First, that experience rating is an imperfect system. Second, not taking a closer look at an EMR in construction that is slightly above a 1.00 could be unfair to the subcontractor and you if you miss out on a what could turn into a great business relationship with a, truly, safety conscious firm.
Stuart Cytron, MBA has been published in trade journals such Construction Forum St. Louis and St. Louis Business Journal among others. You can read more about Stuart and how he developed a passion for helping businesses reduce work comp expenses on his website.
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