Can a high or out of control Experience Modification Rate kill a business? Yes it can. In this post we’ll examine the real effects of high EMR’s and the dangers they pose to the life of a business.
If your Workers Compensation EMR or Experience Modification Rate is 1.50 you are paying three years of workers compensation premium in two years. If it’s 1.75 you are paying three and one half years of workers compensation premium in two years.
What if your your closest competitor has a Workers Compensation EMR of .90? If you are at 1.50 that means your competitor is paying 60% less in workers compensation premium than you! Yes…60%.! What if your competitor has a better EMR than that?
Let’s look at some numbers.
Let’s say you run a masonry contracting business and that you work on large commercial projects. These projects may include government buildings, schools, hospitals and that 40% or your business is generated from large federal government projects. Your annual payroll runs somewhere around $2,000,000 and your workers compensation premium, based on a 1.0 EMR, has been running around $200,000. Your nearest competitor is the same size as you with the same payroll and premium numbers. When that’s the case you have a static situation, neither you or your competitor has a business advantage. But what happens when that changes?
Let’s say that one year your EMR takes a very large hit and your insurance agent has told you that your EMR will be 1.50 on your renewal policy. This means that your premium will increase from $200,000 to $300,000. But what if your competitor has earned an EMR of .80? That means their premium will be $160,000. That’s a $140,000 spread between you and your competitor!
It’s pretty bad knowing that going into a competitive bid situation with your nearest competitor they will have an automatic $140,000 advantage in reduced costs. They will be able to work on tighter margins than you need just to break even! Believe it or not that’s not the worse.
The death blow comes from your inability to now bid on government jobs. The very jobs that made up 40% or your revenue and that were so valuable to you in the past. That’s right, most government entities, when developing bid requirements, will set some sort of minimum acceptable EMR and most times that limit is 1.0!
Oh, and as a final thought, did I mention that the experience cycle of an EMR is three years? That’s right, the claims that created the 1.5 EMR problem will linger on and have a direct effect on the EMR calculation for three years.
Any business can manage around 10% of just about anything. But raise the cost 50% and take away their ability to secure work will kill a business. It may be slow. It may take a few years. But it will happen.
The Take Away: Wake up business owners! Pay attention to your EMR now and learn what you can do to keep tabs on this important workers compensation premium modification factor! Work with a Workers Compensation Consultant and learn about your EMR, the factors that drive it and what you can do to gain control!
Hope this is helpful to you and thanks for reading.