The Experience Modification Rate (EMR), also known as the Experience Modifier or E-Mod, is an extremely important factor in workers’ compensation insurance. The EMR is used to adjust an employer’s premium based on their claim history compared to others in the same industry. Other factors are figured into the EMR to get the workers’ compensation insurance premium.
The EMR is calculated by the insurance company looking at many factors. One of the major components is the employer’s past claims history. This includes the frequency and severity of workers’ compensation claims over a specific period, usually three years. The employer’s claims history is compared to the industry average. If an employer has fewer or less severe claims than average, their EMR will be less than 1.0. Conversely, more frequent or severe claims result in an EMR greater than 1.0. The EMR calculation also considers the employer’s payroll, as larger payrolls typically correlate with higher exposure to risk.
The EMR directly impacts workers’ compensation insurance premiums. When the EMR is less than 1.0, this indicates a better-than-average claims experience, leading to lower premiums. When the EMR is equal to 1.0, this indicates an industry average claims experience, resulting in standard premiums. When the EMR is greater than 1.0, this suggests worse-than-average claims experience, causing higher premiums.
A lower EMR can significantly reduce insurance costs, making it a financial incentive for employers to maintain a safe workplace. Companies with a lower EMR may be more attractive to clients and partners, as it may reflect a commitment to safety and risk management. Implementing robust safety and training programs can help reduce the frequency and severity of injuries and claims. Efficiently managing claims and ensuring injured workers receive appropriate care can also positively impact (reduce) your EMR. Periodically reviewing your EMR and understanding the factors influencing it can help identify areas for improvement.
While there are other factors that insurance companies use to determine the EMR for a company, the factors that have been previously discussed can be used to get an idea of what your EMR may be. Also, by understanding what determines the EMR, you can understand how having less injuries and claims can significantly reduce the amount that your workers’ compensation insurance will increase.
Calculating your company’s EMR involves a few key steps. Here’s a simplified guide to help you understand the process. The first step is to collect your company’s payroll information for the past three years. This data is used to determine the exposure. Then identify the job classification codes for your employees. These codes are provided by the National Council on Compensation Insurance (NCCI) or your state’s rating bureau. Add up the actual losses (claims) your company has incurred over the past three years. This includes both medical and indemnity costs. The next steps are to calculate expected losses which are calculated based on industry averages for companies of similar size and job classifications. This data is also provided by the NCCI or your state’s rating bureau. Once all of this information is compiled, use the formula of EMR = Actual Losses divided by the Expected Losses. As an example of an EMR calculation, let’s say your company has the following data: Actual Losses: $150,000, and Expected Losses: $200,000. Using the formula and inputting the actual values as 150,000/200,000 = 0.75. In this example, an EMR of 0.75 indicates that your company’s claims history is better than the industry average, which would likely result in lower workers’ compensation premiums.
Some of the other factors or additional considerations that an insurance company may use to determine the EMR include Primary versus Excess Losses which means claims are often divided into primary and excess losses, with primary losses being weighted more heavily in the calculation. Some states apply discounts or penalties based on safety programs or past performance such as having a state recognized safety committee could get an annual reduction in your workers’ compensation insurance premium.
Other factors that can impact the EMR include the frequency of claims. A higher number of claims generally leads to a higher EMR. Frequent small claims can be more detrimental than a single large claim because they indicate ongoing safety issues. The severity of claims or the cost of claims, including medical expenses and indemnity payments, also affects the EMR. Severe claims with high costs have a significant impact. Your Industry Classification is important. Different industries have varying levels of risk. Your EMR is compared to the average for your industry, so being in a high-risk industry can influence your EMR. The size of your payroll is used to calculate expected losses. Larger payrolls typically mean higher exposure to risk, which can affect your EMR. Your individual employee classifications are just as important. Your base premium is based upon the classification of the employees. The insurance agent gathers information about the tasks your employees perform and assign them a classification. Implementing effective safety and risk management programs can reduce the frequency and severity of claims, positively impacting your EMR. Efficiently managing claims, including timely reporting and providing appropriate care for injured workers, can help control costs and improve your EMR. Encouraging injured employees to return to work as soon as they are able, even in a modified capacity, can reduce the financial impact of claims. When the worker returns to work even in a reduced capacity, the workers’ compensation insurance does not pay wages as they are covered by the employer. Significant changes in your business operations, such as mergers or acquisitions, can affect your EMR by altering your claims history and payroll size. Ensuring that all data used in the EMR calculation, such as payroll and claims information, is accurate and up to date is crucial. By focusing on these factors, you can work towards improving your EMR, which can lead to lower workers’ compensation premiums and a safer workplace overall.
Effective safety programs are essential for reducing workplace injuries and improving your company’s Experience Modification Rate (EMR). Some key components of a successful safety program include commitment from leadership. This ensures that safety is a core value of your organization, with strong support and commitment from senior leadership. Conducting regular training sessions for all employees, covering safety procedures, hazard recognition, and emergency response is another component of an effective safety program. New employee orientations include safety training for new hires to instill safe practices from the start. Perform regular inspections to identify and address potential hazards in the workplace is very important for an effective safety program. Encourage employees to report hazards and suggest improvements. This fosters a culture of safety and accountability. Implement a straightforward system for reporting incidents, accidents, and near-misses by employees. Investigate all incidents to determine root causes and implement corrective actions to prevent recurrence. Establish safety committees that include representatives from various departments. These committees can help monitor safety practices and recommend improvements. Incorporate wellness programs that address both physical and mental health. Healthy employees are less likely to get injured and recover faster if they do. Provide resources for stress management to prevent burnout and reduce the risk of accidents. Develop return-to-work programs that offer modified duties for injured employees. This helps them reintegrate into the workforce more quickly and reduces the financial impact of claims. Continuously review and update safety policies and procedures based on feedback and incident data. Compare your safety performance with industry standards to identify areas for improvement. Implementing these components can help create a safer work environment, reduce the frequency and severity of claims, and ultimately lower your EMR.
A well-implemented safety program can significantly impact your company’s Experience Modification Rate (EMR) in several positive ways. One such positive way is by reducing claim frequency. By having fewer incidents and injuries, this reduces the number of claims filed against the workers’ compensation insurance. Effective safety programs help prevent workplace accidents by identifying and mitigating hazards, leading to fewer claims. Regular safety training increases employee awareness and adherence to safe practices, further reducing the likelihood of incidents. Lower the claim or injury severity with quick and appropriate responses to injuries. Having a return-to-work program will help injured employees return to work sooner, even in a modified capacity, reducing the overall cost of claims. By having a clear system for reporting and managing claims ensures that they are handled efficiently, reducing administrative costs and delays. Proper documentation and management of claims provide accurate data for EMR calculations, preventing inflated rates due to errors. A strong safety culture encourages employees to prioritize safety, report hazards, and participate in safety initiatives, leading to a safer work environment. Employees who feel safe and valued are more productive and engaged, contributing to overall workplace safety. A lower EMR directly translates to lower workers’ compensation insurance premiums, providing a financial incentive to maintain a robust safety program. Companies with lower EMRs may be more attractive to clients and partners, enhancing business opportunities.
By focusing on these areas, a safety program can help control and reduce your EMR, leading to significant cost savings and a safer, more productive workplace.
(Compiled by an artificial intelligence (AI) program and edited by author)
Would you like more information on how to start or improve a safety program in your company?
Would you like to work to reduce your EMR?
For more information and/or assistance, contact:
Wayne Vanderhoof CSP, CIT
Sr. Consultant/President
RJR Safety Inc.