Workers Comp EMR Risk Management Sample Case

EMR, or Experience Modification Rate, is the most direct method of determining the effect that claim history has on the annual premium a business pays for workers’ compensation insurance. In technical terms, it is defined as follows.

The adjustment of annual premium based on previous loss experience. Usually three years of loss experience are used to determine the experience modifier for a workers’ compensation policy. The three years typically include not the immediate past year, but the three prior. Source: http://en.wikipedia.org/wiki/Experience_modifier

An average Workers Comp EMR rate is 1.0. In essence, an average EMR means that the actual losses during a 3 year period is equal to the expected losses for that period. Since EMR functions as a multiplier, a company with an average EMR rate will pay precisely the calculated premium based on industry, number of employees, and other risk factors. From a work safety perspective, it would appear that these companies are effectively but not optimally preventing work injury hazards that drive EMR risk.

A Sample Workers Comp EMR Calculation

Workers’ comp EMR rates are lower or higher if a business incurs total losses that are lesser or greater than expected losses in the applicable 3 year time period.  For example, a company with more losses than expected may have an EMR of 1.1, and thus their premium is 1.1 times the base premium for their business. At the same time, if that business experiences fewer losses over the next 3 year period, their EMR may be 0.9 and they will pay less than the base premium.

Workers Comp EMR rate variations and resulting premiums

Minimum Workers’ Comp EMR and Controllable EMR

EMR values can and often do vary more than 0.1 above or below average.  Each business has a minimum EMR that they can strive to reach in order to pay their lowest possible workers comp insurance premium.  If Company XYZ has a Minimum EMR of 0.85 and a current EMR of 1.1, they have a Controllable EMR of 0.25 [1.1-0.85].  Here is where the bottom line effect should get the attention of business owners, as seen below.

Minimum EMR and Controllable EMR rate combine to provide total workers comp EMR rate

Effective Safety Reduces EMR Risk and Saves Money

Effective work safety and EMR risk management has many positive effects.  Improved morale, hiring and employee retention advantages, lost time reductions, and project timeline improvements to name just a few.  While these factors are difficult to monetize, the bottom line effect of improved workers comp EMR and resulting workers’ comp premium savings illustrates how effective safety can be at providing long term profit advantages and improved cash flow. It’s clear that from a financial perspective, managing work safety is a win-win for businesses of all sizes or strategies.

Learn how to Lower Your Workers Comp EMR

Examining Safety at Top Contractors

The Engineering News Record recently published a list of the Top 400 Contractors.  At companies with $10-$30 billion in revenue, the number and size of contracts justifies a dedication to worker safety that small to mid sized businesses can emulate to help shorten the learning curve. Safety is deeply integrated into each of the Top 3 contractors’ day to day business policies and organizational culture.  Contracting firms that strive to achieve success may observe this theme as motivation to implement safety at the highest level to increase revenue and support growth.

Bechtel

At Bechtel, the safety goal is Zero Accidents.  Safety is integrated into each project via technical field procedures and extensive training.  Each employee has ‘stop-work authority’ if they feel a job responsibility is potentially unsafe.  To incenitivize safety and communicate its importance to employees, Bechtel provides multiple awards for exceptional safety performance and innovation.

Fluor

Fluor’s commitment to safety includes a “ZERO incidents” policy. Fluor has received recognition as one of America’s top safety companies by demonstrating excellence in “support from management and employee involvement, innovative solutions to safety challenges and effective training programs.” One such program is the Field Audit system, a proactive approach to identify and mitigate work hazards.

Kiewit

Kiewit has instituted and follows a ‘Nobody Gets Hurt’ policy.  Kiewit is focused on preventing even the most minor injuries through  employee engagement throughout the organization coupled with a supporting management commitment.  “Safety training, observation programs and job hazard analyses” help to support this vision.

Innovative Access Solutions

Innovative Access Solutions provides safety equipment to each of the Top 3 contractors listed above.  In addition to the Trucker series of trailer access products, IAS provides custom access solutions for remote locations, unique jobsite requirements and more, in support of construction work safety policies.  To request information about safety equipment from Innovative Access Solutions, click here.

Work Hazard Analysis

Identifying Workplace Hazards is an integral component of an effective work safety program.  As a required element of OSHA VPP Program participation, following an organized hazard assessment process can be the backbone of a company’s safety policy. Identifying hazards provides the ability to mitigate risk and evaluate safety effectiveness.

The work hazard assessment process consists of five main components:

  1. Identify Hazardous Condition
    Hazards that can lead to injury or illness range from physical injury risk to chemicals, temperature, radiation, noise, and electrical.  Employees need to be involved in hazard analysis from the beginning to assist with acceptance and recognition of benefit.
  2. Determine Root Cause
    Potential root causes can include lack of knowledge, lack of physical ability, improper training, or unidentified hazards.  Managers should reassess hazards when new equipment is installed or new work processes developed.
  3. Eliminate Hazards
    Mitigate risks via controls based on level of injury risk, frequency of exposure, and potential harm.  Evaluate the level of overall risk to prioritize controls and implement.  Identify PPE (Personal Protective Equipment) such as gloves, safety glasses, etc.
  4. Control Measures
    Risk management efforts can include engineering controls to manage exposure, layout, and access; administrative controls to to manage employees, tasks, and training; and  work practices for safety, hygiene, and work area cleanliness.
  5. Evaluation of Effectiveness
    Hazard assessment programs should be evealuated on injury prevention effectiveness.  Evaluation tactics include routine inspections; documentation for injury reports and near misses; requesting, researching and responding to employee feedback.

Source: Marine Corp Community Services

Initiating a Work Hazard Analysis

When commencing hazard assessment, plan to document responsible team members, tasks, and step sequence for processes with injury risk.  A Hazard Assessment checklist similar to this sample provided by the California Department of Industrial Relations may be helpful.  Next, determine and document preventative measures, equipment, and Personal Protective Equipment, and train employees accordingly.  Finally, consider residual risk – any risk that remains after controls have been implemented – for future evaluation and improvement.

Creating Safety Culture as a Brand

Safety culture compared to safety policy is similar to the difference between creating a brand and pitching a service.  Putting in place a safety and health program can and will be effective, but motivational factors can seem like a burden to managers and employees.

Creating safety culture will align executive initiatives with employee investment and organizational commitment to create value across operational activities.  As a result, effective safety culture not only reduces hazards, injuries, and related costs, it can also provide reputation advantages that improve employee recruiting, generate sales opportunities, and build morale-based quality and efficiency.

 Core Elements of Safety Culture

Culture is a small word with a large connotation.  Just how to implement culture is a concept that is a challenge to grasp when managing business objectives.  The first step in implementing safety culture is to understand and build upon cultural principles.

Commit to Safety as a Value

Management staff as a rule is subject to shifting priorities and objectives.  To build culture, safety should be considered as a value throughout the decision making process: considering new initiatives, managing day to day activities, reviewing performance, and everywhere in between.  As employees hear safety consistently discussed as a value, they will understand it is not a shifting objective and more actively support initiatives.

Employee Involvement in Decision Making

Culture is the driving force for decision making in business, from leadership to management, operational employees, sales and support staff.  Well known cultural values include quality, service, and efficiency.  As values effect each member of an organization on a continual basis, each employee should be involved in planning cultural systems that affect them.  By providing employees with objectives and focus areas, management will understand key factors and produce safety systems that employees support.

Cross-Departmental Investment

Values such as quality, service, and efficiency are often driven by incentives across the organization, from  executives to managers and staff.  Safety as a value can be rewarded in the same way.  Safety culture should encourage communication across departments, reward performance at all levels, and include cross departmental activities.

To Support Culture, Create Systems

Once you begin to embrace safety as a culture, you will soon identify the need to create systems for consistency, management, and performance review.  Effective systems will build trust and focus on correcting unsafe practices, generally improving the environment for safety discussions.  Systems will also provide management with a process for hazard identification, injury prevention training, incident reporting, and continuing improvement.

The importance of safety to businesses of all sizes is proven to reduce work injuries and related costs, but implementing safety initiatives at optimal benefit is not always easy.  Integrating safety as a cultural value will build motivation across the organization and encourage cooperative discussion.  For more on safety culture, visit OSHA.gov.

Work Injury Prevention Programs

Injury prevention programs have led to a significant reduction in workplace injuries while contributing to improved productivity, reduced turnover, improved OSHA compliance, reduced worker’s compensation claims and premium rates, and higher employee satisfaction.  The costs of a worker injury can be devastating to individuals families and affect businesses on multiple fronts.  In 2009, worker’s compensation benefits paid totaled $58 billion, and indirect costs have been estimated at 1.1 to 4.5 times the direct cost.

Indirect Costs of Worker Injury

  • Wages paid to absent, injured workers
  • Time lost due to work stoppage following injury
  • Administrative time processing injury-related tasks
  • Employee training and replacement following an injury
  • Productivity loss due to new employee training
  • Replacement cost for damaged material and equipment

Source: OSHA Injury and Illness Prevention Programs

Injury Prevention Programs: Effective and Scalable

As of 2012, 34 states, and countries around the world, have instituted required or incentivized injury prevention programs.  The results of state programs are remarkable; work injury rates have been reduced by as much as 60 percent.  Participating businesses have reported additional benefits and some have even encountered more sales opportunities due to their commitment to safety.

 Despite the evidence, many businesses are slow to adopt injury prevention programs.  The perception that implementation will be costly and burdensome, particularly for small businesses, can be difficult to overcome.  The reality has been quite the opposite.  Injury prevention programs are scalable when business owners focus on basic tenets: leadership, participation, hazard identification and prevention, training, and continuing improvement.  The effect on the bottom line is also a positive, due not only to reduced workers compensation premiums and payouts, but also indirect morale, productivity, company image, and process improvements.

Mandatory Policy or Incentivized Benefit?

In a 2012 OSHA white paper, the effect of state programs was reviewed and the results are of interest to businesses considering an injury prevention program.  Incentivized programs in Colorado, Massachusetts and North Dakota resulted in noticeably higher effectiveness compared to mandatory programs in other states.  By providing a worker’s compensation premium reduction incentive,  states reduced work injury by at least 20%, compared to mandatory programs with  10-20% reductions.

In addition to the basic principals of injury prevention and company-wide safety commitment, these results may be a factor to consider for businesses seeking to maximize the effect of injury prevention programs.  Employees who believe their management team cares about safety risks are more motivated, aware, and productive, leading to advantages above and beyond cost benefit.  Anyone who has held a management position knows that while blunt force may get the job done, it often comes with costs ranging from employee resentment to undermining the system.

Incentivize to Promote Safety Culture Investment

Incentivized programs may help to avoid unintended indirect costs while still reaping the benefits.  By incentivizing safety initiatives, employees are more likely to perceive safety as a culture as opposed to a business owner’s cost saving agenda.  Further, incentives will help to communicate safety as a company value with a higher purpose than simply complying to policy. Providing incentives for safety could be based on Key Performance Indicators constructed from hazard assessment initiatives and include cost savings sharing.  Employees that are motivated by incentives will perceive safety not as a management priority but as a mutually beneficial investment.