Experience Modification Ratings (EMR)

Experience Modification affects your premium. Insurance carriers use experience ratings to calculate insurance premiums. If your business has had a higher-than-average rate of injury or illness, the words “experience modification” probably sound like nails on a chalkboard. If you would like to know more about what an experience modification is or how to influence it, please keep reading! From our experience, most people have no idea what an EMR even is or why it is relevant. It is an important factor affecting your insurance costs and something employers should not ignore. In order to understand what an experience modification (“EMR or ex mod”) is, it is helpful to first understand how insurance works.

A basic overview of the workers’ compensation insurance market is to combine a group of businesses who are then sharing the risk of experiencing a loss. The business “loss” of the entire group may be predicted with a fair degree of accuracy; however, it is not possible to predict which of the group members will actually suffer a loss. Due to this uncertainty, the cost of insurance is apportioned to each member on the basis of “average cost” for the group. It is assumed that the experience of each member will approximate the average. In reality, the loss records of some companies are worse than average and some are much better. You are probably thinking, “If my loss record is better than average, I should get some sort of reward.” You are not alone. Experience rating was created by state regulators to encourage workplace safety. Your EMR is determined by comparing the actual losses your business has suffered (during the experience rating period), to the average expected losses for all members of your same industry classification (Actual Losses/Expected Losses = Experience Modification).

You might also be wondering, “are all claims equal?” No, they are not! Recognizing the difference between frequency and severity is fundamental to understanding experience rating. While one severe workplace injury might be a matter of chance, experiencing a frequent occurrence of smaller workplace injuries, is largely controllable. A history of minimal but frequent injuries may indicate that a company is more likely to face more severe ones in the future. Therefore, a greater emphasis is placed on injury frequency when calculating the EMR, because it is a better measurement of overall management effectiveness as well as a strong predictor of future severity.

The experience modification is applied to the starting premium, which is used to provide a company with its modified premium. (Starting Premium X Experience Modification = Modified Premium). If a company loss record is better than average, the employer will have an EMR below 100%, or a credit. For example, if “Company A” has a starting premium of $50,000 and an ERM of 75% (or .75) based on its loss record, the company would pay $37,500 in net premium. However, if that same company experienced a worse loss record than the industry classification average, it would have a higher EMR, or a debit. Let’s say this same company had an EMR which was 125% (or 1.25), it would pay $62,500 in premiums. As you can see from this example, having a better-than-average loss record will definitely give you a competitive advantage over other businesses in your industry classification.

How long do workplace accidents affect your EMR? The “experience rating” period is three policy years, excluding the most recent policy year. This means the accidents your company experienced during your 2007, 2008, and 2009 policies are still factoring into your EMR today, and the accidents your company experiences this policy year will still factor into your EMR for your policy in 2013, 2014, and 2015.

Example: A client’s EMR decline over a 5 year period.

emr-graph

Want to lower your EMR? We would like to emphasize this important point: The decisions you make every day have a significant impact on your EMR. Based on a sound investment, the next step is obvious. You must make prevention and safety a top priority throughout your organization! By encouraging desired behaviors and creating a Culture of Prevention, and simultaneously improving workplace safety performance, you help lower the chance of injury or illness in your workplace. Over time, this reduction in claims will lead to a lower EMR. Of course, even in the safest workplaces, injuries and accidents may still occur; therefore the goal is always to “prevent-the-preventable!”

At Accurate Ergonomics: “We’ve Got Your Back!”

If you want to learn more about how Accurate Ergonomics is able to help your company lower its EMR, Please call us today at 1-866-950-ERGO (3746), or email us at info@accurateergonomics.com.

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