A Closer Look at the EMR
September 6, 2012
If your firm has ever been rejected for a contract because of its experience modification rate (EMR), then you know how damaging this number can be. What can you do to ensure this number is in your favor?
A rating set by insurance companies to assess and assign risk and determine a firm’s insurance premiums, the EMR is determined annually based on the frequency and cost of claims paid. A rating of 1.0 is considered average. A low number of claims can lower the EMR. Conversely, a high number and cost of claims would likely cause the EMR to be over 1.0, which can increase your firm’s insurance premiums.
A higher rating can also affect your firm’s ability to compete. Many project managers use a firm’s EMR as an indicator to benchmark firms when assigning contracts. Even if your firm is otherwise the best qualified to do the work and provides the most competitive quote, having a higher EMR compared to the other firms being considered for the project can disqualify you from the running. When that happens, your only recourse might be to look for work in a different market until you can lower your EMR–assuming you don’t go out of business first.
Firms can take steps to keep their EMR low. Developing and implementing an effective safety program is essential. Such a program should create a culture of safety that emphasizes strategies such as employee training, mandatory use of appropriate personal protective equipment (PPE), and enforced safety policies regarding specific jobsite situations (for example, prohibiting employees from entering confined spaces). Firms should also have a plan in place to investigate and manage incidents and claims when they do occur. Simply looking the other way is not an option.
But there’s a broader issue that needs to be addressed. Although the EMR is one indicator of safety performance, this rating may not be an appropriate single system for evaluating a firm’s overall safety practices. That’s not its intended purpose, and because of the way data is collected and the EMR is calculated, applying it in this way can create an uneven playing field. Surveying firms, in which a majority of employees typically spend most of their time in the field, could have claims such as bee stings and poison ivy that non-field operations won’t encounter. Because of the differences in exposure, a multidisciplinary firm with a surveying division is likely to have a higher EMR than a firm without a surveying division. When both firms compete for the same contract and the EMR comes into play, who is more likely to win the work? It’s the firm with the apparently lower risk, even though they might very well subcontract out the survey portion of the work to another firm.
Resolving this issue will require a two-pronged approach. First, insurance companies need to become more aware of how their ratings are being used against their clients in the business world. Should there be a change in how insurance companies determine their ratings? Perhaps. At the very least, there is an opportunity to create a different rating system that evaluates a broad range of safety factors beyond simply the number and cost of claims that are paid.
Second, those who assign contracts should understand the current limitations of using the EMR as a single source for a safety performance rating. Many factors are not included in the calculation, and the rating is not always applied fairly. Looking beyond the EMR might reveal some surprising truths about a firm’s true safety initiatives.
At the ACEC Fall Conference in Boca Raton this October, COPS will present a session entitled “Impact of EMR and Recordable Incident Rates on your Business.” The session will 1) address steps firms can take to better understand their EMR and recordable incident rates (RIR); 2) provide insight from an insurance company representative as to how the EMR is determined; and 3) discuss how the EMR system could be modified to better serve engineering firms that are winning and losing contracts based solely on the EMR number. Beyond that, COPS is committed to continuing the dialog on what professionals can do to improve the system with regard to how safety ratings are established and applied.
If your firm has been disqualified from a contract or had trouble obtaining a contract due to your EMR or RIR, consider sharing your story so that COPS can use that information as we work with insurance companies to foster a better understanding and develop new solutions.
Safety matters, but it has to go beyond the numbers. By taking a proactive approach, we can increase the safety of our field workers and have a positive impact on our business.