San Diego is witnessing a persistent issue where a decades-old actuarial calculation meant for determining an employer's workers compensation premium is being wrongly used as a safety record. This is having a significant impact on construction companies' ability to bid on projects. Sonja Guenther, senior vice president of IMA Financial Group Inc. based in Littleton, Colorado, highlighted this concern. She emphasized that the problem is especially concerning for high-risk industries as at least one-third of experience modification rating calculations for companies are erroneous. Guenther spoke at the International Risk Management Institute Inc.'s annual Construction Risk Conference in late October.

Understanding E-mods and Their Impact

E-mods, or EMRs, are multipliers used to adjust a company's workers comp premium based on past claims experience. An EMR below 1 indicates a company with below-average claims and leads to a discount, while an EMR above 1 indicates above-average claims and an additional charge. However, nuances and anomalies in data, such as a company's size or payroll crunch, can skew these numbers and result in a higher or lower score. For instance, in both energy and construction, the EMR gets unjustly used in bids to pre-qualify, leading to companies being disqualified from getting jobs even if their actual safety record is good. This is because the EMR is not truly a gauge of safety.Some states have regulations that can affect the data. For example, California excludes the first $250 of a claim from the EMR calculation to remove the incentive to not report small claims to insurers. In Colorado, vehicular accident comp claims are capped at $2,000, skewing the actual comp costs and showing employers paid less than they actually did. Employer size is another element that can positively affect the EMR as larger employers with higher payrolls have an advantage. Other factors unrelated to safety, such as the time a workers compensation policy or renewal goes into effect and claims closure data (often estimations), also go into the EMR calculation.The National Council on Compensation Insurance, which calculates rates for employers in 37 states, has taken the position that EMRs are not a company's safety record. In fact, two states in the last decade have prohibited the use of EMRs in the construction bidding process. Texas enacted a law in 2023 limiting their use, and Virginia did so in 2016. Workers comp rates are the only area where EMRs are intended to affect a company's bottom line as the score is used as a multiplier when setting rates, making a lower score advantageous.