If you are a business owner, or if you have been involved in the bidding phase of construction contracting, you have likely heard the term EMR, or Experience Modification Rate as it relates to Worker’s Compensation Premium. What you may not understand is how it is determined, and how it can have a direct affect on your ability to land future work if this is not closely managed.
Join us here at GovGig as we line out the importance of EMR, including steps you can take to ensure a greater competitive advantage in your efforts to bid future federal contract opportunities.
The term Experience Modification Rate (EMR) is a measure often used by insurance companies to gauge both past cost of injuries and future chances of risk. It provides a high-level view of a company’s occupational injury risk and is primarily used in calculating a company’s workers’ compensation insurance premium. The lower your EMR, the lower your Workers’ Compensation insurance premiums will be.
An EMR of 1.0 is considered the average rate in your industry. If your EMR is below 1.0, your business has a lower-than-average claim rate and will be rewarded with lower insurance premiums. Conversely, if it is higher than 1.0, your company is at a competitive disadvantage as you will be paying a higher premium than that of your average competitors. You can also look at it as a percentage with an EMR of 1.0 being 100% of the average Workers’ Compensation Premium paid. Thus, achieving an EMR of 0.75 (or 75% of industry average) has the potential to pay substantial dividends. As a general example:
Workers’ Compensation Premium of $200,000
EMR of 0.75
$200,000 X 0.75 = $150,000 (a $50,000 savings in premium)
Workers’ Compensation Premium of $200,000
EMR of 1.25
$200,000 X 1.25 = $250,000 (a $50,000 increase in premium)
As this example relates, the difference in cost savings can be substantial depending upon the risk class employed, and man hours worked. (Note: Workers’ Compensation premium is determined by calculating EMR by the Workers’ Compensation Class of the worker employed. As different jobs present different levels of risk, the amount paid in premium will reflect this risk level)
While the methods by which EMR is calculated may differ between states in which you may operate, the concept is the same in that workplace injury claims (losses) have a direct effect on your EMR. Remember, failure to effectively manage workplace injuries can have a long-lasting effect as EMR is calculated gauged upon a 3-year historical average. In other words, if your company sustains a significant loss today, that loss will affect your company’s EMR for the next 3 years.
So now that we have touched briefly on what EMR is, why does it matter?
As explained by My Comply, a digital onboarding provider: “EMR can be a critical component when competing for work in the construction industry. Some asset owners have EMR standards where they will only work with contractors who attain EMR scores below 1.0. A competitor to your business may have a much lower EMR, and that could be the difference between winning the project or losing it.”
Ultimately, failure to manage workplace safety, which has a direct correlation with your ability to manage workplace injuries can have a direct affect on your ability to bid on future work as it is often used as an indicator of a company’s past safety record and its historical cost of workplace injuries.
Here is how EMR can affect your bidding process:
1. Safety Program Indicator: A lower EMR suggests that your company has a developed and refined safety program resulting in lower workplace injuries. This can be a significant advantage when bidding for contracts as both the Federal Government as well as many general contractors view a lower EMR as a sign of responsible management and value the importance of an established and affective safety program.
2. Prequalification Requirement: In many cases both the government and other companies performing work in the federal sector require specific EMR thresholds for contractors to be eligible to bid on projects. This threshold can vary by contractor but will likely never be above 1.0. If your EMR is above this threshold, you may be disqualified from the bidding process.
3. Competitive Advantage: A lower EMR will result in lower Workers’ Compensation premiums. These lower premiums will allow for more competitive pricing as you bid on work and can even put you on a preferred vendor list with certain companies opening up additional opportunities for company growth.
4. Risk Management: Remember, potential clients often value low risk. When a company effectively manages and maintains a low Experience Modification Rate, it signals a strong commitment to safety. This can instill confidence that projects are less likely to be delayed or become more expensive due to workplace accidents or injuries.
Maintaining a low EMR is not only beneficial for reducing insurance costs but is critical for securing new business. While not a simple, one-size-fits-all process, this is best accomplished through prioritizing safety on your projects, through effective injury and claim management when incidents do occur, through thorough incident investigation, and through targeted, and strategic hiring practices.
Please reach out to us should you like to learn more about effective strategies for lowering your Workers’ Compensation premium as you aim to maintain a competitive advantage in this challenging market.
Cory J. Grimmer, CSP, CHST