A Useful Experience Modification Rate Definition
Working in any kind of business that requires workers’ compensation insurance, you’ve probably come across a line item in your premium quotes that are labeled EMR, or Experience Modification Rate.
There are tons of articles on EMR ranging from ambiguity to doctored-level detail – but you’ll be hard pressed to find one that lays out a simple definition with useful tips and applicable guidelines to lower your insurance premium. Well… search no longer. Let’s break down the Experience Modification Rate in the most useful EMR article on the internet:
What is my Experience Modification Rate, or EMR?
Your Experience Modification Rate – in as simple a definition as possible – is a ratio that insurance providers use to calculate your workers comp premium rates.
To elaborate a bit, the industry average Experience Modification Rate will always be a golden 1.0. This rate can fluctuate up and down, based on how your business performed in regard to workers comp claims, compared to other businesses.
In other words, if your business has been accident-free for the last 3 years, you’ll have an incredibly low Experience Modification Rate compared to other businesses within your industry. If your business has been on a spree of workplace accidents within the last 3 years, you’ll likely have a very high Experience Modification Rate.
To recap: 1.0 is your industry average Experience Modification Rate, always. Think of 1.0 as your baseline – not too good, not too shabby, but just in line with the number of claims that most businesses within your industry incur.
How do insurers calculate my EMR?
NCCI is the creator of the EMR system. You’ve probably had to use NCCI’s Class Code database before, as it’s used as the national standard for most workers compensation data points.
NCCI created the EMR system as a simplified method for insurers to calculate your business’ risk level and give you a properly adjusted premium quote as a result. This system helps protect business owners like you from over-inflated insurance quotes and protects insurance agencies from improperly insuring risky businesses.
To calculate your Experience Modification Rate, insurers will look at the last 3 years of claims data your business has reported, in comparison to other businesses within your industry and state.
Are all of my claims given the same weight?
No!
The Experience Modification Rate system takes a wide variety of factors into account before giving you a set number. For instance, Medical-Only claims are discounted by over 70%. Further, the EMR formula utilizes a Split Point to give more weight to frequent claims vs. infrequent but large claims.
This Split is a huge part of your Experience Modification Rate, so let’s elaborate on that a little further. Right now, the national Split begins at $17,000. That means that every dollar of a claim will be weighed in full, up to $17,000. Once a claim breaks past that split, the rest of the amount is discounted.
The purpose of this Split is to give more weight to frequency than the severity of claims. For example, a business with 10 claims of $30,000 each will have a much higher Experience Modification Rate than a business with 2 claims of $150,000 each. This is to keep businesses with very strong safety cultures from reaching a devastating premium on a few accidents.
How does my EMR affect my premium?
Well, the answer is: quite significantly. Let’s imagine business A has an Experience Modification Rate of 1.0. business B has a rate of 1.7, and business C has a rate of 0.6.
Now, for simplicity, let’s say that business A, the business with an EMR of 1.0 pays $100,000 for their premium. With this same premium rate, business B (with an EMR of 1.7) will pay $170,000 for their premium. Business C (with an exceptional rate of 0.6) will only pay $60,000 for their premium.
That’s a massive difference in premium rates – which is capital that can be well-spent in other areas within your business.
How can I lower my EMR?
Now that you have a basic understanding of what your EMR is, you’re probably wanting to know how you can lower it, and lower your premiums.
The good news is that a lower Experience Modification Rate is fairly easy to obtain. The solution is simple: lower the number of accidents that occur within your workplace.
There are numerous ways this can be done, and we recommend that you give our June article on Quick Tips a look over for practical methods in promoting a safety-first work environment to keep those claims down.
Lowering the number and severity of claims in your workplace requires a comprehensive safety management system to manage the risks unique to your workplace. Building a safety management system from an “off-the-shelf” program or relying solely on safety and health manuals is likely to produce little, diminished or no return. Your business is different from the rest and as such, the safety management system should reflect the specific processes, risks and environment of your organization.
Hopefully, this article has helped you sift through the overwhelming insurance-jargon that comes along with workers compensation claims. Your Experience Modification Rate is an incredibly powerful number, capable of tanking your business with high insurance premiums, or freeing up an executive’s salary with the savings garnered from having a low rate. All businesses should aim to keep this rate as low as possible – for your bankroll’s sake, yes, but more importantly, for the safety of the employees that you’re lucky enough to have work for you.
For more in-depth information regarding the factors that go into calculating your Experience Modification Rate, please download our free Simple Guide To EMR.
