Demystifying the Workers’ Comp Experience Mod

Your company’s Workers’ Compensation Insurance Experience Modification Rate (EMR) affects your annual insurance cost, but it can be difficult to decipher. Nonetheless, it is pivotal to gain at least a basic understanding of how it works if you want to reduce expenses.

What is an Experience Modification Rate?

Basically, an Experience Modification Rate is a number representing your company’s safety record and claims history when compared to other similar companies in the same industry in your state.

If your company is no more or no less risky than the average it has a neutral EMR of 1.0. If the comparison reveals your company is riskier than your peers, you’ll have an EMR higher than 1.0. If the comparison reveals your company is safer, you’ll have an EMR under 1.0. A lower EMR means lower workers’ compensation premiums.

How is the EMR Calculated?

The Experience Modification Rate compares your company’s actual losses to its expected losses by industry type. Actual losses are the indemnity and medical claim costs your company has paid or expects to pay from a work-related injury or illness. Expected losses are the statistical average losses for a business with a similar size payroll and from the same industry. Larger businesses typically incur larger losses.

Insurers look at claims history for the three full years ending one year before your current policy expires. For example, a quote for coverage for a policy that expires January 2018 will include data from 2014, 2015, and 2016.

However, some modifications are necessary as it is more difficult to estimate risk in a small company when compared to a large one, because they do not file as many claims. As well, adjustments are necessary since one big loss shouldn’t affect the EMR as much as an overall trend of increased loss. Consequently, calculations include additional elements to level the playing field.

This complicated final formula determines the ratio between expected losses in your industry and what your company incurred, and the frequency and severity of those losses. This is your Experience Modification Rate.

In California, the WCIRB calculates EMR for eligible businesses. Experience rating is mandatory for all qualified businesses.

How Your EMR Affects Premiums

The Experience Modification Rate is multiplied against the manual premium rate to determine your premium before insurer discounts or credits. If your company has an EMR of 1.25, you will pay 25% higher premiums than the average. If your company has a 0.80 EMR, you will pay 20% less than the average. Obviously, this can have a significant on your company’s bottom line.

Lowering EMR

Once the WCIRB assigns an EMR, you’ll want to contact your agent to verify is accurate. If it is, the only way to lower your EMR is through diligence, planning, and actionable steps to improve workplace safety. Here are a few proven strategies to do so:

  • Anticipate risk – an employee wellness program, regular workplace inspections, and training can prevent injuries, illness, and claims.
  • Develop a comprehensive safety programOSHA states that workplace safety programs can reduce fatalities, injuries, and illnesses which lowers workers’ compensation costs and medical expenses and can sidestep OSHA penalties. Reporting injuries promptly reduces the cost of claims, too.
  • Implement & monitor a return-to-work program – an effective program returns employees to work as soon as they’re able. Even when employees return to work part-time, they collect fewer benefits; which can reduce your workers compensation costs.
  • Manage claims actively – using an active claims management program manages reserves and focuses on open claims’ resolution.
  • Train supervisors & managers – these people play a key role in recovery and injury management by developing positive relationships with employees.
  • Screen during hiring – a thorough screening process can eliminate unfit candidates through legal, appropriate methods.

The final piece of the puzzle is an effective insurance professional with risk management experience. They can pinpoint trouble areas and suggest ways to improve.

Partee Insurance Associates is a premier southern California insurance agency that focuses on your commercial needs. Let us help you reach your workers’ compensation goals.