Many of our readers are involved in the construction industry. They perform work either as a contractor, general contractor, subcontractor or in some other related support field like insurance or accounting. Workers compensation premium issues and the construction industry go hand in hand and it’s easy to understand when you realize that one of the largest expense items for a contractor is their workers compensation cost. Another lesser known but critical problem for many construction industry employers is the use of the experience modification rate, EMOD or EMR, as a safety indicator and contract requirement.
Designed strictly as a premium modifier the EMR has worked its way into being used as a guide to indicate how safe an employers business operations are conducted. This is NOT its intended use!
You see, many construction contracts and guides for bidding jobs now include a provision that requires a bidding contractor to produce evidence that their EMR, experience modification rate, is 1.0 or better. You’ll find it’s now used as a requirement to bid jobs and certainly a requirement for those being awarded a bid contract. The EMR is not only being used as a pre-bid job requirement but many times as a requirement to stay on a job after the contract has been awarded!
We were recently contacted by the insurance agent of an employer whose workers provide service work on utility facilities for several general contractors. The workers typically work in the field. They travel to a utility facility that requires their services, perform their work and move on to another location. This employer has contracts in place with several general contractors to provide this type of work. One of the contract requirements is that they maintain a 1.0 or better EMR. This employer has historically maintained a EMR ranging from .90 to .94 however a single large claim during their most recent experience period has caused their renewing EMR to be 1.04. They are concerned about losing two contracts that generate millions of dollars in revenue for their company. Loss of these contracts could put this employer out of business.
Without knowing the facts you might jump to the conclusion that our contractor gets what he deserves. But hold on for a minute…here’s the claim facts:
- The injury was caused by a worker from another company working on the same job site;
- The other worker was operating a front end loader, carrying a large metal pipe;
- The claim description states that the equipment operator “flung” the pipe from the loader causing it to roll a considerable distance where it landed on the injured worker causing significant injuries, there were many witnesses to the event;
- The employer of the loader operator has admitted responsibility;
So now we have what’s known as a subrogation issue. While our primary contractors workers compensation insurance carrier is paying for the injury and lost time suffered by their worker, they know that after the claim is finished and closed they will subrogate against the loader operators employer. They will more than likely recover the dollars spent on the claim.
So, if they get their money back what’s the big deal? During the claim process the primary employers work comp carrier must pay dollars out in medical and indemnity (lost wages) for the injured worker. They also set reserves on what they believe will be the ultimate cost of the claim. All of these numbers are reported to, in this case, NCCI for use in calculation of the primary employers EMR. Once the claim is closed they will pursue subrogation against the other employer and it’s only then that they may recoup their dollars spent for the claim. This type of claim may take several years to fully develop and come to an end. Probably after the end of the rating experience period of the primary employer. Simply put the claim will fall off of the EMR rating calculation period before subrogation even occurs let alone any monies are returned and any recouped dollars will not even show up in future EMR calculations. The damage is already done!
Does this employer operate a safe work environment? Unfortunately in the eyes of the hiring contractor maybe not. Especially if they stick to using the EMR as a safety indicator!
Did I mention that this is a very good reason to have your workers compensation claims reviewed? If you operate in the construction industry and rely on maintaining a 1.0 or better EMR, then you should consider having all claims reviewed by an independent workers compensation consulting! Contact my office for more information on this topic or help with a problem.
Hope this helps you out!