How an intentional culture of safety changed the bottom line.
The Experience Modifier (E-Mod) can make or break a business. Unfortunately, many construction companies don’t know enough about this little number and its very big impact on the bottom line. Simply stated, the E-Mod is a calculation made by the National Council on Compensation Insurance (NCCI) that is used by the insurance industry to compare a company’s injury experience with that of similar companies. This number will either decrease or increase your Workers’ Compensation premium, depending on claims/injury history, as well as the frequency and severity of those claims. When your E-Mod is lower than 1.0, you pay less for premiums, you can be more cost-competitive, and you will look more attractive in the bid process – which could open up more bidding activity and, hopefully, more revenue.
Cassandra Kramer, president of ValCon Masonry in Virginia Beach, Virginia, is all too familiar with the profound effect of a negative E-Mod adjustment. After a single incident shattered her company’s consistent safety record, their E-Mod shot to a 1.16 (baseline is 1.0), and the fiscal impact was very expensive. After intentionally fostering a culture of safety throughout the organization, Kramer and her Director of Safety and Loss Control, Mitch Zawaski, were able to decrease their E-Mod to 0.74 in just three years. Here is their story and wisdom from their journey.
“Construction business owners have to understand how the E-Mod works, know what actions can affect it, and see its long-term overall financial impact on the bottom line,” Zawaski says. “It’s imperative for companies to integrate the E-Mod into their business model and apply every tool in our limited toolbox to lower that number.”
When Kramer opened the doors in 2011, ValCon was given an E-Mod of 1, which is every company’s starting point. Their stellar safety record earned them the credits to drop that number to 0.75, giving them a significant 25% discount on their Workers’ Comp premium. According to Kramer, “A single accident in 2016, which involved three injured people, drove our E-Mod up to 1.16—a net increase of .41, resulting in a 41% increase to our Workers’ Comp premium. That hurt.”
Because ValCon was a small company with low man-hours, the incident caused a much more significant bump in their E-Mod than the same incident would have for a company with 500 employees. Because the E-Mod is calculated using your previous three-year average, ValCon would carry the 2016 incident until 2020. “Previously, we could reflect our 25% premium discount in our bids,” Kramer says, “but after 2016, we had to start adding the appropriate percentage over a 1.0 to each bid to cover the premium hike.”
In response, Zawaski and Kramer took decisive action. According to Zawaski, “Knowing how the E-Mod was going to affect our business, we became much more intentional and proactive about fostering and maintaining a culture of safety.” Their focus paid off. Over the course of just two years, they dropped their E-Mod to 0.74—even lower than their previous rating of 0.75.
So, what’s ValCon’s E-Mod control advice for other companies? As you ramp up your safety programs to boost job-site compliance and employee protection, here are three essential facets that will help impact your E-Mod and your bottom line. (To get the basics on the E-Mod, check out this article.)
Understand E-Mod specifics.
Talk to your Builders Mutual Risk Management Consultant, insurance agent, and your peer network to discover options that can help control day-to-day costs and prevent an E-Mod adjustment in the wrong direction. For example, many employers don’t realize that, with smaller incidents, they can pay out-of-pocket for the injuries. A report of injury is still made to the insurance company, but if a claim is not opened, the incident does not count against your E-Mod. “Let’s say an injury occurs that costs $5,000 in medical fees. If it’s reported for record-keeping purposes but covered out-of-pocket, the incident does not ping the E-Mod,” Zawaski explains. “But, with a claim that affects the E-Mod, that same incident can potentially cost $30,000 over the three-year E-Mod adjustment period.”*
Helpful information abounds, so get educated. “There are no secrets among safety professionals,” Zawaski says. “Get plugged in with a network to ask questions and get insights.” The ultimate goal is the same, and the industry is all working together. “An organization that doesn’t use the safety resources out there is short-changing themselves,” he says. “They are negligent not to do it.”
Engage employees in E-Mod awareness.
“Business owners and safety directors talk constantly about safety to their teams and subs – at least they should,” Kramer says. “But it’s also important that employers introduce the E-Mod and its impact to their field management and employees.” It’s eye-opening for employees to discover how safety impacts their job at the management level. “Of course, we want our people to maintain safety through the day for the obvious reasons,” she continues, “but when they really get how safety affects the E-Mod, and then how the E-Mod impacts our ability to bid on new jobs, that changes everything.” This information is powerful and transfers to every employee a sense of job ownership at a deeper level.
Another recommendation is to involve field employees during a job-site inspection. Ask them to look around and identify positive or negative safety situations. Make reporting second nature, so the team is open to talk about it. “Once they understand E-Mod and how their pay is ultimately impacted by safety, they’ll have ownership in the process,” Zawaski says. “No matter what level they’re at or what role they’re in, they’ll put more into it.”
Be diligent about safety.
This might seem like a no-brainer to readers. But Kramer and Zawaski are adamant that business owners, site supervisors, and safety directors take intentional, proactive safety programming to new levels. According to Kramer, “We always had an excellent safety record prior to that 2016 accident, and this hit us all like a hammer. An emphasis on safety became a daily focus at every level.” Zawaski adds, “It’s a constant process of safety improvements. Some days there are big steps, other days, little ones.”
The company honed in on more stringent reporting. “We follow our own strict protocols and the GC’s specific protocol,” he continues. “Every sub is walking around the job-site looking at everything. We even watch other trades, as well, reacting to both positive and negative observances.” ValCon implemented a hardcore “see it, say something” policy. Every little thing is money, including safety precautions, loss control, and equipment quality.
Younger companies might not understand how the E-Mod works, so they won’t have the foresight to know what a proactive safety program will offer them. When an employer realizes the depth of an E-Mod’s impact, they will consciously build a foundation of safety. Again, safety is not just about the well-being of your workers, although that is vital. A solid culture of safety means revenue. “The prequalification component of the bid process is huge,” Kramer explains. “We are required to send our OSHA 300 Logs, OSHA Citations, VOSH Citations, and specific safety programs to the GCs. In some instances of federal or municipal work, if you don’t have all these factors covered, plus an E-Mod below 1.0, you simply won’t be considered.”
*Always work with your insurance company and communicate with your claims adjuster to ensure injuries and claims are handled appropriately and within state-specific guidelines.