SAN DIEGO — A decades-old actuarial calculation used to determine an employer’s workers compensation premium continues to be misapplied as a safety record, affecting construction companies’ ability to bid on projects, an expert said.
Sonja Guenther, Littleton, Colorado-based senior vice president of IMA Financial Group Inc., said the issue is even more concerning for companies in high-risk industries, as at least one-third of experience modification rating calculations for companies are erroneous.
She was speaking at the International Risk Management Institute Inc.’s annual Construction Risk Conference in late October.
E-mods, or EMRs, are multipliers used to adjust a company’s workers comp premium based on past claims experience. An EMR of below 1 indicates a company with below-average claims, resulting in a discount, and above 1 indicates above-average claims, resulting in an additional charge.
Nuances or anomalies in data, such as a company’s size or payroll crunch, can skew the numbers and create a higher or lower score.
“In both energy and construction, that EMR gets unjustly used in bids to pre-qualify, so you could be disqualified from getting a job,” Ms. Guenther said. “This is actuarial stuff; it has nothing to do with safety.”
Contributing to what she calls an “inequity” for certain companies, some states now have in place regulations that can affect the data, she said.
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, and Colorado caps vehicular accident comp claims at $2,000, meaning the actual comp costs paid in both states are skewed in calculating the EMR, showing employers paid less in comp costs than they actually did.
Employer size is another element of the calculation that can positively affect the EMR, as larger employers with higher payrolls have an advantage, according to Ms. Guenther. Other factors unrelated to safety that go into an EMR calculation include the time a workers compensation policy or renewal goes into effect and claims closure data, which are often estimations, she said.
The issue is the EMR is typically used as a scorecard for a company’s safety program, a trend that began decades ago after data scientists connected the two, Ms. Guenther said. “I can’t tell you why we bought into that, but it was very influential,” she said. “E-mods are not a gauge of safety.”
The National Council on Compensation Insurance, which calculates rates for employers in 38 states, has taken the position that EMRs are not a company’s safety record.
Two states in the last decade have also prohibited the use of them in the construction bidding process. Texas in 2023 enacted a law limiting the use of EMRs in construction bids, and Virginia in 2016 enacted a law prohibiting the use of EMRs as a factor in securing a contract.
Workers comp rates are the sole area where EMRs are intended to affect a company’s bottom line, as the score is used as a multiplier when setting rates, which is why a lower score is advantageous, according to Ms. Guenther.
There are strategies to improve EMRs, such as closing claims or providing light-duty assignments for injured workers, reducing actual claims costs overall, and reducing unpaid reserves, she said.
Integrated data ecosystems give contractors better handle on risks
Most contractors and construction insurers collect data on projects, but few integrate information systems effectively to manage risks, according to data professionals.
“There’s a lot of evidence that if you start getting good data architecture in place within your organization, you actually see better results, not only from a profitability and productivity standpoint but there will be fewer losses that you suffer on the job sites,” said David Bowcott, Toronto-based executive vice president of the construction industry group at Platform Insurance Management Inc.
Companies that use the data have “substantially better margins,” he said during a session at the International Risk Management Institute Inc.’s annual Construction Risk Conference in late October.
The issue isn’t data collection — contractors use hundreds of platforms to record everything from safety incidents to scheduling to weather — it’s connecting the information, said Thiago Da Costa, CEO of Datagrid, a San Francisco-based data company.
The “vast majority” are not connecting their data, which can show why losses happen, down to which supervisor was in control on days losses occurred, Mr. Da Costa said.
Artificial intelligence can create expansive risk profiles for potential projects based on information gathered from past projects, he said.
Rosie O’Neill, Marietta, Georgia-based senior sales executive at Origami Risk LLC, a risk management and insurance software company, said older methods involving paper reports create duplication and disorganization. “It’s disparate and all over the place; sometimes it’s in a drawer,” she said.
With newer technologies in place, once data is collected, the capabilities are expansive and can help organize and steer a project and answer questions such as, “When we build a hospital, do we have more problems than when we build a movie theater?” Ms. O’Neill said.
Data also helps connect incidents to exposures, such as how often equipment has been damaged and whether it is time to replace it, Ms. O’Neill said.
Data can also be used in safety departments and for Occupational Safety and Health Administration logs, she said.
Aleksey Chuprov, vice president of data analytics at Suffolk, a Boston-based construction management services company, said, “Every level of an organization from a CEO down to a project manager” can use data to drive decisions and prevent losses.
“It has been a very long journey to get the trust and the buy-in from an industry where people make decisions based on their gut feelings and their experience and not the understanding of the patterns,” Mr. Chuprov said.
