When companies finalize their new merger or acquisition, they, understandably, pour over pages and pages, containing years of data and information. However, one important piece of information is often overlooked. That piece of information would be the workers’ compensation history. Specifically, the current workers’ compensation experience modification factor (EMR) and claims analysis of the company being acquired or merged.
Workers’ Compensation Experience Modification Factor
As a reminder, a work comp EMR is a factor or multiplier based on a company’s past actual losses versus their expected losses. An EMR of 1.00 means that the company’s actual losses were the same as their expected losses. If a company has fewer actual losses than expected in the industry, then the EMR will be below 1.00. If they had more losses than expected it will be above 1.00. This factor is then multiplied by your base work comp premium and that is how your total premium is determined.
Unintended Consequences
What companies often fail to realize it that when you acquire a company or merge with them, you are also acquiring their workers’ compensation history.
The new EMR will be a combination of both companies. That means that if the acquiring company has an EMR below 1.00 and they acquire a company with an EMR above 1.00 the “new” EMR could go above 1.00. That means that instead of having a DECREASE to your base work comp premium you could actually experience an INCREASE.
If you are paying tens or hundreds of thousands of dollars for your work comp insurance this could be very costly.
Impact Within Merge or Acquisition Scenario
Not only could there be an immediate direct financial loss, but it could also affect the company’s ability to bid on certain jobs. Some jobs require the contractors on site to have an EMR of 1.00 or less. If your new combined EMR is above 1.00 the company may lose revenue by not being able to bid or work on certain projects or worse, the company may be kicked off of a current job.
What To Assess Early On
In addition to a company’s current work comp experience modification factor, companies should also look at the current open claims of the companies they are acquiring. These open clams have the potential to further increase the EMR should the claim amounts increase. This is especially true during times of uncertainty for employees during a merger or acquisition. Employees may be wondering if they will still have a job when they come back from a workers compensation injury. This may cause the employee to stay our longer and not try to get back to work.
Looking at a company’s workers’ compensation history can also be a good indicator of company safety. If a company has an EMR above 1.00 there is a good chance that there is a lack of safety training. An acquiring company would certainly want to know this so that they could immediately implement additional employee training. If these negative trends continue it could potentially affect the other employees from the acquiring company.
A company’s workers compensation information is easily attainable. Most companies are very aware of their current EMR, and they will typically have loss runs on file or can request them quickly from their insurance agent. This information could prove to be extremely valuable and even play a major role in a merger or acquisition decision.
