Asset managers and owners are keen to work with contractors who have a proven and strong safety record. When it comes to vetting a potential partner for a project, companies historically have looked to one key metric to assess past safety performance: experience modification rating, or EMR. EMR is a calculation used by insurance companies to determine workers’ compensation premiums.
A contractor’s assigned EMR is based on a couple factors, including actual insurance claim history, which gives owners and managers an idea of the kind of risk they would take on by hiring that partner. Traditionally, companies rely almost exclusively on EMR when selecting contractors during prequalification.
But a company’s EMR only tells a small part of the story. While EMR can offer insight into a company’s loss prevention and control practices, it doesn’t factor in its existing safety management systems, its ability to effectively implement those systems, compliance programs, and a variety of other factors that contribute to company safety culture. Furthermore, what affects EMR—and well as how it’s regulated—differs by state, making it more difficult to compare contractors head-to-head.
“EMR is kind of a gauge to see how insurance companies assess the risk of a contractor. But, from a safety officer’s perspective, it’s a very small piece of the underlying assessment for the contractor,” Garrett Burke, a certified safety professional and the president and founder of Highwire.
At Highwire, we’ve developed a system for assessing contracting partners that takes all of these other factors and datapoints into account—in which EMR is only one tiny slice. As the demand for labor grows and capital projects become more complex, owners, managers and contractors need to work together to mitigate risk and improve jobsite safety. This ethos is at the heart of our Partner Elevation framework. Relying on arbitrary or incomplete safety benchmarks discourages collaboration and misrepresents the complex reality of safety and risk.
We propose a better way of rating contractors that still includes EMR. It’s a risk scoring system designed to reduce incidents and drive down insurance costs, while promoting the kind of collaboration needed to dynamically reduce risk. Before we dive in, let’s first explore EMR in depth.
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What is an Experience Modification Rating (EMR)?
Simply put, experience modification rating is a metric used by insurance companies to determine how much they should charge a company for workers’ compensation insurance. It is also inappropriately used as a tool for asset managers and owners to compare injury rates between prospective contractors.
The average EMR is 1.0, where it is set for companies just getting going, and then modified based on past incidents and expected losses. The figure is correlated with how much a company pays in workers’ compensation premiums and, therefore, impacts overhead costs and total bid price.
Because it is based on past incidents, EMR is a measure of a number of different lagging indicators. That means data from prior safety incidents that occurred five or more years ago could only just be influencing a company’s score today.
How is Experience Modification Rating calculated?
A company’s experience modification rating is computed using payroll (12 months of real wages); “class rate” or code, which is used to classify certain kinds of work; and losses. Insurance carriers report this information to the National Council on Compensation Insurance, which makes EMR calculations in the vast majority of states (for a list of independent bureau states, click here).
But EMR scores alone hardly ever lend themselves to apples-to-apples comparisons between companies or trades. Additionally, when companies are involved in owner-controlled insurance programs, where the entity-owner holds all the insurance and all the subcontractors work for them, reporting breaks down often, or lags for several years.
“In some states and jurisdictions, there are confusing and convoluted reporting requirements,” Burke says. “In other states, there’s much more stringent reporting.”
What is a good EMR?
Over time, a contractor’s EMR will decline if they have no injuries that require significant medical care. Incidents that require significant medical care or days away from work will raise a company’s EMR. A company could have a significant number of incidents that do not require medical care and would be deemed “safe” according to the EMR calculation.
Generally, an EMR below 1.0 is considered a good score associated with cost savings, whereas an EMR above 1.0 is associated with higher premiums.
Because EMR is calculated based on payroll, companies with smaller payrolls can be penalized when they experience a single incident compared to companies with larger payrolls.
“Every organization has different payroll. Some organizations might have a lot of people in the office, and not as many in the field or on jobsites,” Burke says. “So their losses are going to be less and their payroll higher, meaning their EMR will be significantly lower.”
How do you improve your EMR?
To improve EMR, a company should work towards reducing safety incidents, effectively managing their safety programs, while monitoring their score. Executive management needs to prioritize EMR at both a systems and cultural level, creating or improving upon the company’s safety program, devising site-specific plans, and exploring the root causes of incidents or near misses. For a detailed explanation on how to improve your EMR, click here.
The Highwire approach to scoring
Highwire’s safety scoring system takes experience modification rate into account, but it only represents 10% of the scoring algorithm. The platform’s scoring mechanism is based on a 100-point scale that takes into account safety management systems, working conditions (Occupational Safety and Health Administration citations), program compliance, and other safety processes.
“Our biggest indicator of risk is safety management systems and companies’ ability to implement safety management systems effectively,” Burke says. “Of all the components that we assess, safety management systems is 30% of that score.”
Additionally, our scoring system levelsets rating criteria across states and jurisdictions, making it easier to assess companies one-to-one.
FAQs and related resources
Q. What is the highest experience modification rate possible?
Most companies aren’t assigned an EMR above 1.6 or 1.7, or below 0.6. Contractors just starting out are set at the industry average, which is 1.0.
Q. What is an acceptable experience modification rate?
An EMR of 1.0 is the industry standard, with anything below considered desirable.
Q. How does OSHA use EMR?
Experience modification rate is not an OSHA metric, and is only used by insurance companies, contractors, asset owners and managers, procurement professionals, and risk management or safety directors.
Q. Does EMR vary by state, such as in California?
The regulations governing EMR vary by state. Presently, EMR is calculated by the National Council on Compensation Insurance, which is currently the accepted standard in 39 out of the 50 states.
