For all construction companies, workers’ compensation is a necessity. But the costs can add up if a company is not paying attention to the ways it can reduce its costs. The easiest way for a company to reduce its workers’ compensation premium is to prevent losses for occurring in the first place. While that might seem like an obvious answer, it’s much easier said than done in some cases.

What is an experience Modification rating?

Any company with a workers’ compensation premium of more than $5,000 annually is likely familiar with an Experience Modification Rating (EMR). EMR is a factor developed by comparing a company’s workers’ compensation loss experience for three prior years to an industry standard. If the company’s “experience” is higher than the industry standard, an EMR of more than 1.00 is the result. The larger the difference between the company’s actual “experience” to the “expected” experience, the larger the EMR will be.

The reverse is also true. If a company’s actual loss experience is better than the industry standard, the EMR will be less than 1.00. The greater the difference, the lower the EMR. The EMR is applied to the gross workers’ compensation premium. The other important point to take note of is that each year of “experience” remains in the EMR for three years. So, each loss in that three-year period will impact the rating for three consecutive years in the future.

For example, if a company’s EMR is 1.50, then its workers’ compensation cost will increase by 50%. The same goes for the reverse. If a company’s experience modification is .70 then its premium is reduced by 30% because of its good experience over the three-year period presented in the rating.

How can a company reduce losses?

The key to reducing losses is to increase the time, effort and money being spent on a company’s safety program. This holds particularly true for companies in the construction industry.

One step a business can take is to work with the loss control department of the insurance carrier writing their workers’ compensation policy to help build a safety plan. It’s free and many will offer training classes or online modules in addition to jobsite or plant visits to help identify problem areas. Also, make safety results part of the performance review process for supervisors and managers. The key to any safety plan is to make sure it’s done with the best interests of the employees in mind. The main reason a company wants to prevent injuries is because they truly care about their employees and never want to see them injured. A premium savings is a benefit to that but it’s not the intent. Otherwise, companies won’t have buy-in from employees and supervisors, reducing the program’s effectiveness.

What to do when a loss does occur

While having effective safety measures is important, it won’t prevent all losses. When a loss does occur, it’s critical to get the employee back to work in some capacity as soon as possible. Each state’s workers’ compensation law has a defined elimination period before the indemnity payments (loss of wages) are paid. In some states it’s three days while in other states it’s seven days. If the injured worker can return to work prior to the elimination period running out, even in a “light duty” capacity, and the carrier does not make any indemnity payments to the injured employee, then 70% of the claim total is not used in the firm’s experience rating. This means that 70% of medical-only claims for a company are not used in the experience rating calculation. For larger companies with a lot of smaller claims, this can have a major impact on EMR.

Even with more serious claims where an employee has been out for several weeks, it is very important to get the employee back working on a light duty basis before being released by their doctor for a full duty return. This gets the employee back in the routine of work and helps to make the transition back to their normal work duties smoother and less stressful.

Having a lower EMR will also increase competition among insurers. There is a lot of discretion in terms of pricing available to all carriers writing workers’ compensation policies and a relatively low EMR will help lead to more aggressive pricing, giving companies more options and help decision makers select the policy that works best for their business.