How Important is Your EMR in the Pre-Qualification Process?

Author, Sam Clayton, Vice President, Construction Group, Rancho Mesa Insurance Services, Inc.

With 2024 right around the corner, general engineering and trade contractors will be required by government agencies and general contractors to enter the annual pre-qualification process in order to bid work. These entities are looking closely at a company’s project history, including project size, bonding capacity, limits of insurance as well as a companies’ Experience Modification Rate (EMR).

An EMR is a numeric representation of a company’s audited payrolls for the three prior years (not including the current year) and your workers’ compensation claims history, compared to businesses in the same industry or standard classification. EMR’s create a baseline for business while allowing for a surcharge or debit when employers claims are worse than expected and a credit when employer’s claims are better than industry average. Companies with and EMR rate below a 1.00 are considered better than average, while greater than 1.00 are consider below average.

Pre-Qualification Process

In the highly competitive environment of construction bidding, it has become common that government agencies and general contractors will preclude contractors from the pre-qualification process if your EMR exceeds 1.00 or 1.25. In my opinion, this represent an oversight as many companies have strong will developed safety programs, yet their EMR is holding them back. Some examples of this include:

1. The EMR is a lagging factor. Only the last three policy periods, not including the current policy period are taken into consideration for the calculation.

2. EMR’s can include claims that may have been unavoidable and don’t represent a lack of safety (i.e. an employee was involved in an auto accident and was not at fault).

3. Large indemnity claims can have a significantly higher impact for a smaller company vs. a larger company with a similar size claim.

Rather than placing such critical importance on the contractors current EMR, government agencies and general contractors designing the pre-qualification process should include frequency indicators like incident and DART Rate (i.e. days away, restricted or transferred) or put more emphasis on a contractors’ 5 or 10-year average EMR. 

Given the importance of the pre-qualification process an and the potential for contractors to be precluded from new opportunities to bid work, we’ve developed a proprietary Key Performance Indicator “KPI” Dashboard as well as our SafetyOne Desktop & Mobile App to assist companies in managing their EMR. These tools will, among many things, help you:

• Benchmark your experience against your peers.

• Weigh the impact of any claim to your EMR.

• Project your future EMR a year in advance.

If you would like a KPI created for your company, or would like to learn more about our SafetyOne App, please email me at sclayton@ranchomesa.com.

Implementing Best Practices when Hiring in the Construction Industry

Author, Casey Craig, Account Executive, Rancho Mesa Insurance Services, Inc.

With unemployment rates settling near 4%, it is becoming increasingly difficult to find the right employees to help grow your construction company. With most able-bodied workers having secure employment, this leads to having either apprentice-type employees that come with unique challenges or pulling from an aging workforce that can bring cumulative injuries and risks. Navigating these issues can be complex and there is not a perfect solution, but employer’s hiring practices need to change in order to keep up with the current state of the industry.

When hiring new employees, consider:

• Pre-hire drug testing

• Pre-hire physicals

• Targeted job postings with accurate description of daily work

• Multiple levels of interviews

• Simulating work at your office that potential new hires would be performing in the field

The US saw a unique shift in the workplace as a result of COVID-19 where employees felt their value skyrocket as fewer people were willing to work in-person. Employers were forced to increase wages to get bodies on jobsites. In prior years, it may have been enough to just rely on word of mouth and referrals to get new hires. Too often now, we are seeing new hires suffer “ghost injuries” that are quickly followed with letters of representation.  These and similar types of cumulative trauma claims can have long term impacts on your experience rating (EMR). While these situations are difficult to prevent, using best practices and conducting thorough interviews with your prospective employees will allow you to make educated decisions which typically lead to better hires.

Taking advantage of the best practices listed above can help insulate your company from poor hiring decisions. Obviously, we would love for new hires to turn into long term employees, as onboarding and proper training can be a costly expense in both other employee’s time and payroll. In a recent survey conducted by Traveler’s Insurance, it was shown that 34% of workplace injuries occurred during the worker’s first year on the job. This can be from a combination of inexperience, overexertion, and/or lack of safety knowledge.

Consider these hiring and onboarding processes to assist in mitigating the glaring number of claims that are emanating from newer employees or employees that have limited experience on jobsites. The financial impact they can have on your company will impact your balance sheet for years and can be potentially avoided with implementing some of our recommended techniques

To learn more about improving your hiring practices or how Rancho Mesa can help to improve your process, reach out at (619) 438-6900 or ccraig@ranchomesa.com.

Properly Utilizing Tailgate Meetings

Author, Casey Craig, Account Executive, Rancho Mesa Insurance Services, Inc.

For many foremen and superintendents, weekly tailgate meetings can feel like a task that just needs to be checked off the list. However, while the purpose of these meetings is critical for the health and well-being of fellow field employees, the time required and repetitive nature of them can create challenges. To maximize the benefits of these meetings, construction firms must be proactive and thoughtful as they develop an inventory of topics.

Identifying Tailgate Meeting Topics        

Take ample time with your sales team to understand the scope of your backlog to see where hazards may appear within these projects. Plan training topics with an eye on the weather, paying close attention to historically warm or cold months. Consider connecting with your insurance broker as well on recent injury trends that you can address with the crew.

This will be pertinent as your company approaches their renewal window with underwriters looking at claims history. They commonly ask, “what has the insured done to make sure these claims don’t happen again?” Learning from your past is key to being proactive. Knowing you will have certain exposures coming up and addressing those with preventative training topics begins to build a Best Practice Safety Program.

Accessing Content for Training

Locating “Toolbox” trainings can be time consuming and, in some cases, costly. And very often, the trainings may not be applicable to your operation and/or the trends you may need to focus on. With an eye to the future, Rancho Mesa has recently introduced a proprietary SafetyOne™ App. Safety managers will be able to document safety inspections from their mobile device and assign required fixes to employees, while also tracking when they have been completed. Meeting content can also be distributed to supervisors through their mobile device all with a focus of making safety meetings more efficient and effective. These same supervisors can now access a vast library that can be customized to their operation. 

Reach out to me to learn more about the SafetyOne™ App and how Rancho Mesa can partner with you and your team moving forward. You can reach me at (619) 438-6900 or email me at ccraig@ranchomesa.com

Construction Death Rate Not Decreasing as Expected

Author, Casey Craig, Account Executive, Rancho Mesa Insurance Services, Inc.

With the heightened safety regulations and OSHA guidelines over the past decade, many would think we are working in a much safer environment with fewer fatalities. Despite the rising number of employees and using a standard based off deaths per 100,000 employees, the data is showing that the number of fatalities are the same as they were a decade ago.

With a much larger workforce, OSHA is severely understaffed compared to the previous decade. The agency does not have enough inspectors to visit nearly enough jobsites. They have been more reactive in the sense that they are imposing fines on companies after they have had losses. These fines represent a fraction of what it would take to motivate construction companies to revamp their respective safety programs. Employers have factored these fines into the cost of business to a certain extent.

OSHA is now contemplating whether it is worth doubling the jobsite inspections annually and/or increase fines drastically. There is no solid data to link an increase in jobsite inspections to fewer fatalities, so the logical answer would be heavier fines and a push for more negligent death claims to be criminally prosecuted.

Either of these options will lead to more oversite or more fines for the construction industry as a whole. One critical approach you can take is to prepare yourself as a business owner. Be proactive. Consider working with the consultation branch of OSHA to visit your operation and jobsites. This division within OSHA does not issue fines or violations. They do, however, offer recommendations and advice on how to make your operation safer. With the potential of OSHA’s fines increasing, it is time to make sure that your company is on the forefront of safety. A great first step is reaching out to your insurance broker to help you meet requirements and push you to exceed. With a potential recession looming, it is important to make sure you have insulated your company from risk, so you have the best chance at thriving.

If you have any urgent questions on this topic, you can reach me directly at (619) 438-6900 or email me at ccraig@ranchomesa.com.

The Link Between Your EMR and Primary Threshold

Author, Casey Craig, Account Executive, Rancho Mesa Insurance Services, Inc.

One of the biggest concerns for contractors is their Experience Modification Rating (EMR). If your EMR exceeds 1.00 or 1.25, contractors can be removed from bid lists and premiums can escalate quickly. Most decision makers have little idea what factors contribute to the EMR and just how claims can impact them.

All construction companies are assigned class codes that best define their operations and those class codes have expected loss rates associated with them. The more losses that occur per $100 of payroll for that class code, the larger the expected loss rate will be. So, an electrician with a much lower expected loss rate than a roofing contractor will have each claim impact their EMR more. These are variables that can have a significant impact on your company’s EMR. The variable that fluctuates amongst each company is the amount of payroll they develop in each class code. The more payroll generated, the lower your best possible EMR can be.

Consequently, as a company’s best possible EMR decreases, the Primary Threshold increases. The Primary Threshold is a cap or threshold unique to each company. The higher the primary threshold, the less that any one claim can impact your EMR. For example, a painting contractor using the 5474 class code and averaging $200,000 a year in payroll will have a best possible EMR of 83 and primary threshold of only $8,500. Each claim has the potential of contributing 40 points to their EMR. While another painter that averages $10,000,000 in payroll will have a best possible EMR of 41 and primary threshold of $49,000. Thus, the maximum any one claim can impact the company with higher payroll is just 5 points.

This certainly is a drastic difference but it makes sense as the larger company has more employees which leads to more exposure and more expected losses. The component that most companies do not know well enough is that for each company in the examples above, the WCIRB penalizes the exact same for any claim that exceeds your primary threshold. So, for the smaller company, an $8,500 claim is worth 40 points to their EMR, a $1,000,000 claim is worth the exact same amount. And, the same for the larger company with a $49,000 claim worth 5 points but any claim dollars in excess of that will not impact the EMR.

Taking this information into account, we urge our clients to focus on mitigating claims before they happen as well as doing their best to reduce contributing factors such as temporary disability. Having your carrier pay for your employees missed time leads to your EMR increasing and your premiums inevitably being higher than you would like.

Understanding and implementing a return-to-work program is extremely beneficial to your company and leads to you saving money over time. Working with your broker to better understand how to properly handle claims and making sure you are doing everything possible to keep your EMR as low as possible is vital to your company’s profitability and is very much in your control.

Everyone wants a better EMR and lower premiums but the elite contractors are active in not only preventing claims from happening but understanding how important it is to keep their employees at the workplace, or at the very least, off the couch at home.

If you would like to learn more about your firm’s primary threshold or how it is impacting your company, please do not hesitate to reach out to me directly at ccraig@ranchomesa.com or call me at (619) 438-6900. 

Profitable Bids Should Include Often Overlooked Insurance Costs

Author, Casey Craig, Account Executive, Rancho Mesa Insurance Services, Inc.

We will take a look at factors that go into your bid and ways to ensure you are hitting your target profit margin.

There are many factors that go into creating a profitable bid on a construction project. They include:

• The scope of the work

• The location of the project

• Material costs

• Labor costs

For most construction companies, their estimators are well versed in all of the areas mentioned earlier and yet despite their best efforts, an unforeseen circumstance may occur and drive up the cost of a project, resulting in reduced profitability or a loss on the project.

One area that is often overlooked, but controllable, is the impact insurance has on the profitability of the project. The question to ask is how prepared are you and your staff to address the following questions:

Do you have the required insurance, coverages, limits, and terms in place to meet the contractual requirements of the project? If not, what will be the cost to add those requirements?

Will the project overlap your insurance renewal? If so, what changes in your Experience Modification Rate (EMR) can you anticipate and what will be the dollar impact?

What changes in your General Liability and Excess Insurance rates can you expect? 

Working with your insurance advisor on the above is a necessary step is helping to create a better opportunity for profitable jobs. At Rancho Mesa, we follow strict Best Practices and have prescheduled meetings with our insureds throughout the policy term, but additionally conduct a focused pre-renewal meeting 120 days prior to policy expiration.

Those meetings allow us to:

• Keep our clients aware of changes in the insurance marketplace that may impact their business.

• Project their EMR for the coming year and discuss how this might influence your bidding process.

• Review industry workers’ compensation trends in both Pure Premium Rates and Expected Loss Rates and their impact on workers compensation costs.

So, work with your insurance advisor and uncover those overlooked insurance costs to minimize risk and maximize profitability. To understand these factors in more detail or to look at our new KPI Dashboard that puts this information at your fingertips you can reach me at 619-486-6900 or ccraig@ranchomesa.com.

COVID-19 Workers Comp Surcharge Coming to California

Author, Sam Clayton, Vice President, Construction Group, Rancho Mesa Insurance Services, Inc.

Adding frustration to the growing concerns for businesses dealing with COVID-19, the Workers’ Compensation Insurance Rating Bureau (WCIRB) has recommended California employers pay a COVID-19 surcharge on their 2021 workers’ compensation policies. 

If approved, this new COVID-19 surcharge will vary by industry and have a minimum of $0.01 and hit a maximum of $0.24 per $100.00 of payroll. The industries with less of a COVID-19 exposure can expect a lower surcharge. While industries with a higher exposure can expect a greater increase. The additional surcharge my not seem like a lot, but multiplied by a company’s payroll, it can be significant to a company’s bottom line. Additionally, this surcharge will apply to all California employers, regardless if they had any COVID-19 illnesses.

The Workers’ Compensation Insurance Rating Bureau (WCIRB) approved the surcharge after growing concerns that the number of COVID-19-related workers’ compensation claims will continue to increase. It’s been estimated this year that 11% of all workers’ compensation claims in California have been COVID-19 related. The surcharge will help the insurance carriers mitigate the growing cost of the claims that could not have been anticipated when rates were calculated for 2020 policies. Even though COVID-19 claims will not be included in California’s companies’ Experience Modification Rates (i.e., XMOD, EMR), carriers will look to a number of variables in order to adequately price for an individual company’s premium. Those will include:

1. Overall claims experience

2. COVID-19 claims experience

3. The COVID-19 protocols and practices that are in place

Rancho Mesa, California union employer groups, as well as several carriers including the State Compensation Insurance Fund (State Fund), oppose the surcharge idea. Our feeling, as well as many of the others, is that most carriers are now underwriting specifically for COVID-19 by evaluating the businesses’ COVID-19 claim history and safe guards. Thus, there is no need for an additional surcharge.

In the next few weeks, we will release a follow up article that will highlight the best practices employers can implement now to minimize the COVID-19 impact to their organization and 2021 workers’ compensation renewal pricing.

For questions about workers’ compensation and the COVID-19 surcharge, contact me at (619) 937-0167 or sclayton@ranchomesa.com.

California’s Workers’ Compensation Landscape May Reach a Valley in Coming Year

Author, Drew Garcia, Vice President of the Landscape Group, Rancho Mesa Insurance Services, Inc.

The workers’ compensation market for landscape companies in California has remained in a downward trend since 2015. As a result, landscape business owners have realized lower rates and subsequently aggressive premiums.

The following are some key insights to help landscape businesses prepare for their 2021 workers’ compensation insurance renewal.

For Experience MOD (XMOD) purposes, it’s important to know the Expected Loss Rate (ELR) for the landscape class code (0042) has decreased 8% over last year, $2.38 per $100.  With a lower ELR comes an adverse effect for landscape companies’ individual XMOD, as a result of lower expected losses.  Lower ELRs also drive down the primary threshold, amplifying each claim’s impact on the XMOD.  Have your 2021 XMOD projected early to identify any possible implications. 

Pure premium rates are developed by the Workers' Compensation Insurance Rating Bureau of California (WCIRB) and approved by the insurance commissioner to reflect the expected losses and loss adjustment expenses for each class code.  Insurance carriers can then use these rates to come up with their own base rates to establish premiums.  Pure premium for the landscape industry is down 8% over last year, from $5.61 to $5.14.    The WCIRB also added a $.06 surcharge for COVID-19 claim impacts for the landscape industry.  The Landscape Industry was labeled under tier 3 of 5, were the $.06 surcharge will be applied.  Other tiers such as 4, 5, and 6 saw $.012, $.18, and $.20 surcharges as it was deemed those industries have a larger exposure share to COVID claims.  In the end, with the surcharge, Pure Premium is slightly down and theoretically should lower carrier base rates.

Watch a 10-minute webinar where Drew Garcia explains the California Workers' Compensation marketplace for the landscape industry.

Areas like Los Angeles Country, Riverside County, and San Bernardino Country have had higher claims activity and claim outcomes than other parts of the state. Carriers use territory factors to more accurately align their premium for your business, depending on your location. Territory factors can either credit or debit your policy based on the location of your business or surrounding areas where you operate. For example, if you are a landscape company in Riverside County but doing business in San Diego Country, make sure you are breaking out these operations so your underwriter can accurately evaluate the correct percentage of operations in Riverside vs. San Diego.

The average base rate filed by insurance carriers for class code 0042 is $10.63, which is down 7% over last year.  Carriers determine base rates based on industry appetite, historical loss experience, pure premium rates, and overhead.  Not all carriers have an appetite for landscape business and the lowest base rate does not mean the lowest net rate.  Insurance carriers have the ability to apply “schedule rating” which is a list of criteria they file for with the California Department of Insurance to allow underwriters the ability to deviate off the price.

In 2019, the top three carriers writing workers’ compensation insurance in California by premium volume was State Fund (10.56%), Berkshire Hathaway Homestate Companies (7.12%), and Insurance Company of the West (6.94%).  Rounding out the top ten were Hartford, Travelers, AmTrust, Zurich, Chubb, Fairfax, and Employers. 

Our advice for 2021:

• Have your companies 2021 XMOD projected today, if not at least 6 months before your policy is set to renew.

• Meet with your insurance professional 120 days before renewal to determine the renewal strategy.

• If you are discussing different carrier options with your agent, ask the next level questions:

  • What other landscape companies does this carrier work with?

  • What is their rating?

  • How long have they written workers’ compensation in California?

  • Are claims handled in house or by a third party?

The numbers above indicate the perpetuation of a soft market, however, we are steadily seeing the delta of decrease shorten.  Take this information to help your company formulate your renewal strategy and impact the discussions you have with your insurance agent in 2021.

If you have questions about your workers’ compensation renewal, contact me at (619) 937-0200 or drewgarcia@ranhcomesa.com.

The Importance of Timely Workers’ Compensation Claims Reporting

Author, Casey Craig, Account Executive, Rancho Mesa Insurance Services, Inc.

Injuries, accidents, and mistakes happen. When a work-related injury occurs, a common reaction from many business owners is an instinct to NOT report the injury to their workers’ compensation carrier for fear of increasing their company’s Experience Modification (EMR). However, they couldn’t be more wrong. Timely reporting of all claims is the first step in controlling claim costs and lowering their EMR.

Best Practices would demand that all claims get reported within 24 hours, if at all possible. By doing this, it provides the best possible outcome and will impact the claim in several positive ways:

Reducing Fraudulent Claims

One of the biggest frustrations in the workers’ compensation industry for most employers are the number of fraudulent claims that find their way into the system. Immediate accident investigation, witness statements and pictures followed by reporting the claim to the carrier within 24 hours of the injury, will give the employer and the carrier the best opportunity to deny a claim. The insurance carrier only has 90 days from the date of injury (not from the date reported) to deny a claim. This shortens that time-frame and allows more fraudulent claims into the system.

Lowering Litigation Rates

Another area employers find both frustrating and costly are the number of litigated claims that occur within the workers’ compensation system. Litigated claims on average will add 30% to 35% to the ultimate cost of a claim. While there are many ways employers can impact this area, perhaps the most controllable is the timely reporting of any injury. To further support this, it has been proven that the litigation rate for claims goes up 300% if the claim is reported 5 or more days after the injury occurred.

Identifying Claim Trends Early

By not reporting all claims or by reporting them late, employers can develop unreliable data in their effort to identify claim trends and root causes. Without this information, businesses in all sectors run the risk of a severe injury occurring from an area that could have been addressed if all claim data was accurate and analyzed.

When an injury occurs, do a thorough accident investigation that details all events that caused the injury and immediately call your workers’ compensation carrier. This one habit alone will help you lower claim costs and manage your EMR.

To learn more about this process, including benchmarking and analytics that can help control your loss ratio and lower premiums, please reach out to me, Casey Craig at (619) 438-6900 or ccraig@ranchomesa.com.

Landscape Companies with Low Experience MODs Do These 5 Things

Author, Drew Garcia, Vice President of the Landscape Group, Rancho Mesa Insurance Services, Inc.

Landscape companies with a low Experience Modification Rating (XMOD/EMR) typically exhibit similar best practices when dealing with work-related injuries. Their proactive approach helps close claims faster and return employees to work sooner than their counterparts.

The XMOD/EMR is a unique number assigned to a business that is made up of their historical loss figures and audited payroll information vs. the same information for companies involved in the company’s same industry. Generally, if your business has experienced more claim activity than the industry average, you will have a XMOD/EMR above 1.00. The opposite is true; if you have had less claim activity, your XMOD/EMR will be below 1.00. The XMOD/EMR impacts the rates you pay for workers’ compensation by crediting (XMOD/EMR below 1.00) or applying a surcharge (XMOD/EMR above 1.00).

Here are the 5 best practices used by landscape companies who have an XMOD/EMR) below 1.00.         

1. An Aggressive Return to Work Program

If you heard our podcast episode with Roscoe Klausing of Klausing Group, you will hear him coin the phrase an “aggressive return to work program” which was a key component to his company, of more than 70 employees, going 3 years without a lost time accident.

Aggressively finding a way to help bring an injured employee back on modified work restrictions has long been proven to provide positive outcomes for everyone involved.  Benefits of bringing an employee back on modified duties include:

• Eliminating temporary disability payments from the claim cost.

• Lower the dollar amount of medical treatments. 

• Reduce the overall cost of the claim.

• Lower the potential impact the claim would have on your XMOD/EMR.

• Improve injured employee morale.

2. Timely Reporting and Accident Detail

It is critical to constantly remind your front line supervisors and employees that they must report all injuries no matter the severity as soon as possible.  Studies have shown that work related injuries reported with the first 5 days have a dramatically lower average claim cost and litigation rates than those reported after 5 days.

Two measurable statistics for you to keep an eye on are:

1. The lag time between when an injury is reported to you from an employee.

2. The amount of time it takes you to report this information to your insurance carrier. 

By conducting a thorough accident investigation at the time of injury and providing a report to your insurance claim professional, you will speed up the claims process and lower costs. Eliminating the time delays caused by the claim professional waiting for details or additional information is critical in making sure your injured employee is on the fast track to recovery.  To assist the landscape industry in completing this necessary step, Rancho Mesa has created a free, fillable, carrier approved accident investigation report for use by the landscape industry.

3. Communication

Keeping in constant communication with employees who are injured is vital to a positive outcome.  At times, the workers’ compensation process can seem slow.  Some injuries will take longer than others.  This can lead injured employees to feel frustrated and uncertain. Make sure you are addressing their concerns and checking in on them, frequently.

4. Know the Basic Principles Behind the XMOD/EMR

You do not need to know the XMOD/EMR formula, but you should have an understanding of the basic concepts that leads to XMOD/EMR inflation.  

• You should know when your claim information will be sent to your rating bureau for next year’s XMOD/EMR calculation and make sure you are familiar with the status of each claim before the information is locked. 

• If your rating bureau uses a Primary Threshold or Split Point, it is good to understand how this number impacts claim cost and each claim’s impact on the XMOD/EMR.

• Know your lowest possible XMOD/EMR, this would be all your payroll with zero claims.  The points between your lowest possible XMOD/EMR and your current XMOD/EMR are the controllable points. 

• Know the policy years that are used to calculate the XMOD/EMR.

5. Relationship With Your Carrier and Claims Professional 

The carrier claims professional who handles your injuries can have a huge impact on the outcome of the claim. If you are fortunate enough to have a dedicated claim adjuster assigned to your company, make it a point to call and introduce yourself before the first claim occurs.  The adjuster should have a very good understanding of:

• Your attitude and policy regarding return to work programs.

• The level of accident information they will receive from you.

• Who will be your company’s main contact throughout the claim process?

Consider these five best practices when handling your workers’ compensation claims to keep your XMOD/EMR under control and your workers’ compensation costs low.

Distracted Driving, Not Just an Automobile Insurance Issue, Bad News for Workers Compensation Too

Author, David J Garcia, A.A.I, CRIS, President, Rancho Mesa Insurance Services, Inc.

I’ve written at length on the negative effects distracted driving is having on the automobile insurance industry and its impact on the rise in accidents, claim costs, and increases to your automobile premiums. But, have you considered its effects on your Experience Modification Rate (EMR) and ultimately workers’ compensation cost?

When one of your employees is injured in an automobile accident while working on your behalf, Arising out of Employment (AOE) / Course of Employment(COE) their sustained injury will be covered by your workers’ compensation policy, regardless of fault.

“Regardless of fault?!”

When a third party is deemed at fault and the injuries to your employee(s) have been settled, your workers’ compensation insurance carrier may “subrogate” their costs to the carrier representing the at fault driver. Now, here is the realty – studies have shown that 14.7% (4.1 million) of all California drivers are uninsured, while another large percentage of drivers hold the California minimum limits of $15,000/$30,000. What this means is that even if subrogation is a possibility, the likelihood of a “full” recovery is not probable. Thus, all the costs of the injury to your employee(s) will likely be the sole responsibility of your workers’ compensation carrier and this claim cost negatively affects your EMR and loss ratios for years to come.

What can you do?

You can implement a strong fleet safety program that includes a policy pertaining to distracted driving. When your employee is involved in a motor vehicle accident, adherence to your company’s accident investigation protocol is crucial. Documentation will prove pivotal for your carrier if subrogation becomes a possibility.

For our clients, through RM365 Advantage, we have a number of resources: fleet safety programs that can be customized, fleet safety training topics, fillable and printable accident investigation forms, archived fleet safety workshop videos, and more, in both English and Spanish. You can access this through our RM365 Advantage Risk Management Center or contact our Client Services Coordinator Alyssa Burley at aburley@ranchomesa.com.

If you are not a current client of Rancho Mesa, we encourage you to reach out to your broker for assistance or email Alyssa Burley to get additional information or to ask any questions.

Changes in the 2019 Experience Modification Formula – Are You Ready? (Part 2)

Author, David J. Garcia, A.A.I, CRIS, President, Rancho Mesa Insurance Services, Inc.

As we approach 2019, there will be several changes in the experience modification formula that directly affects the calculation of an employer's 2019 Experience Modification Rate (EMR).

Part 1 of this article describes the Primary Threshold and Expected Loss Rate. Read Part 1 of this article. Part 2 provides an overview of the changes to the EMR calculation. 

The Simplified Formula

Individual claim cost (i.e., both paid and reserved) will go into the calculation up to the primary threshold limit are considered the actual primary losses. Any claim cost that exceeds your primary threshold is considered the actual excess loss. In past experience mod formulas, the actual excess loss was used in the factoring of your EMR; in 2019, it will have no effect. However, under the new calculation, the industry expected excess losses will be considered in the 2019 simplified formula.

Actual Primary Losses + Expected Excess Losses / Expected Losses  

The expected excess losses are calculated by multiplying your class code’s payroll per $100 by the expected loss rate for that same class code. This number is then discounted by the “D Ratio” to determine expected primary losses and expected excess losses. There are 90 different D-Ratios for each classification based on the primary threshold. The D-Ratio is different for each classification and is determined by the severity of injuries that occur within that particular class code.

The first $250 of all claims will no longer be used in the calculation of your EMR.  

This is a major change and one that was initiated in part to encourage all employers to report all claims, including those deemed first aid, without having a negative impact on the companys’ EMR. This change will affect all claims within the 2019 calculation; so yes, it will include years previously completed and reported. This will have a positive impact on EMRs in that claim dollars will be removed from the EMR calculation. 

Confused – Want more details?

Help is on the way. We are going to hold a statewide webinar on Thursday, October 4th at 9:00am in order to dig deeper into this subject and answer specific questions. You may register for the webinar by contacting Alyssa Burley at (619) 438-6869 or aburley@ranchomesa.com.

Changes in the 2019 Experience Modification Formula – Are You Ready? (Part 1)

Author, David J. Garcia, A.A.I, CRIS, President, Rancho Mesa Insurance Services, Inc.

As we approach 2019, there will be several changes in the experience modification formula that directly affects the calculation of an employer's 2019 Experience Modification Rate (EMR). Sadly, most businesses are both unaware and unprepared.

Before we breakdown the changes to the 2019 EMR formula, we must first have a strong understanding of the two critical components that directly affect the outcome of the EMR. This article will be broken out into 2 parts. Part 1 will describe the Primary Threshold and Expected Loss Rate. In Part 2, I will provide an overview of the changes to the EMR calculation. 

The single most important number to my EMR is not my final rating?

Primary Threshold

Rancho Mesa has long taken a stance on the importance of a business owner knowing their primary threshold as it relates to the EMR. Proactive business owners should monitor their primary threshold annually as it is subject to change due to payroll fluctuations, operations, and the annual regulatory filing of the expected loss rate. In general terms, the more payroll associated with your governing class (the class code with the preponderance of your payroll) the higher your primary threshold will be. The primary threshold is unique to every business. The 2019 EMR formula is heavily weighted by the company's actual primary losses, the claim cost (both paid and reserved) that goes into the calculation up the primary threshold amount. Controlling claim cost and knowing your company's primary threshold is the first step to understanding the EMR.

Expected Loss Rates

The expected loss rate is the factor used to anticipate a class code's claim cost per $100 for the experience rating period. The expected loss rate (ELR) is not to be confused with the pure premium rate (PPR). The ELR differs from the PPR in that the ELR simply measures the basic claim cost for a class code without including loss adjustment expense, excess loss load (capped at $175,000 for X-MOD purposes), and loss development. The PPR includes all of the mentioned above factors and is the rate for which a carrier can expect to pay all of the cost associated with claims in a specific industry. The PPR does not account for the carrier’s overhead, profit, tax, and commissions.

The ELR changes, annually. It’s important to monitor the change; if your expected loss rates go down (from our analysis this is the direction most are going) and if nothing else changes, your EMR will go up. Why is this? Again, without going too deep, in simple terms, your EMR is a ratio of actual losses to expected losses. If your expected losses go down, but your actual losses remain the same, then your EMR will go up.  

To illustrate this, consider the following. Actual losses are $25,000 and your expected losses are $25,000 your EMR would be 100. Now, if your actual losses stay the same at $25,000, but your expected losses drop to $20,000, your EMR would now be 125%. (There are other factors that would go into the actual calculation, so your actual EMR would be different – this was just to illustrate the expected losses impact to the EMR.)

In Part 2 of this article, will cover the actual changes to the EMR calculation.

For more information about the EMR, contact Rancho Mesa Insurance Services at (619) 937-0164.

Experience Modification Factors and the Pre-Qualification Process

Author Sam Clayton, Vice President, Construction Group, Rancho Mesa Insurance Services, Inc.

As we enter 2018, government agencies, project owners and general contractors often require subcontractors to enter their pre-qualification process.  Many of these entities will look closely at your Experience Modification Rate (EMR).  

EMR is a numeric representation of a company’s payroll and claims history, compared to businesses in the same industry or standard industry classification.  EMRs create a common baseline for businesses while allowing for a surcharge when employers' claims are worse than expected and credit when employers' claims are better than the industry average.  More specifically, companies with an EMR rate of 1.00 are considered to have an average loss experience.  Factors greater than 1.00 are considered worse than average, while less than 1.00 are considered better than average.  

Pre-Qualification Process

In the highly competitive world of construction bidding, it has become more common that contractors can be precluded from the pre-qualification process due solely to above average EMRs.  This represents an oversight as many companies have strong, well-developed safety programs, yet their EMR is holding them back.  Some examples of this are:

1. EMRs are lagging factors. They only factor the last three policy periods, not including the current policy period.  
2. EMRs can include claims that may have been unavoidable and do not represent a lack of safety (i.e. an employee is rear ended by an uninsured motorist).
3. Large severity claims from smaller sized companies can impact the EMR much more negatively than a similar sized claims at a larger firm.
4. The effectiveness of claims handling may vary from one insurance company to another, thus impacting certain employers when cases remain open with high reserves.

Rather than placing such a critical importance on the EMR Rate, owners and contractors designing the pre-qualification document should include frequency indicators like incident and DART Rate (i.e., days away, restricted or transferred) forms.  These measuring tools incorporate current year totals and can provide up to 5 years of historical data.  Incident Rate calculations indicate how many employees per 100 have been injured under OSHA rules within the specific time period.  The DART rate looks at the amount of time an injured employee is away from his or her regular job.  Lastly, contractors attempting to become pre-qualified should have the ability to provide a detailed explanation should their EMR exceed 100.  This can include loss data, a summary of the company’s Illness and Injury Prevention Plan (IIPP) and code of safe practices, and more information on what exactly the company is doing to reduce future exposure to loss.

Given the importance of the pre-qualification process and the potential for contractors to be precluded from new opportunities to bid work, we’ve developed a “Best Practices” approach to assist companies in managing their EMR.  

Managing Your EMR with Best Practices

The Best Practices approach to high EMRs includes a total claim physical, claims advocacy, and implementation of the Risk Management Center. 

Total Claim Physical
The total claim physical accurately identifies your company's strengths and weaknesses, and then scores the company against others in the industry. It includes an audit of the EMR, analysis of claim frequency and severity, claim trends and determine root causes, provide quarterly claims reviews, and conduct pre-unit stat meetings.

Claims Advocacy
Utilizing a claims advocate can decrease existing claim costs, reduce excessive reserves, and expedite claim closures, which can reduce the EMR.

Risk Management Center
The Risk Management Center provides access to safety training materials and tracking, analysis of incidents and OSHA reporting, monthly risk management workshops and webinars.

For more information on managing your EMR before the pre-qualification process, contact Rancho Mesa Insurance Services at (619) 937-0164.