02 Oct Demystifying The Experience Mod
Most companies understand their Experience Modification Rate (EMR) affects their workers’ compensation insurance premiums, but it’s not easy to understand how they arrive at your rating. Nonetheless, it is very important to have a basic understanding of what affects your EMR if you want to reduce your insurance costs.
What is an Experience Modification Rate?
Workers’ compensation assigns your company a rating which reflects your claims history and safety record when compared to similar companies in your industry in your state. A rating of 1.0 indicates your company is no more or no less risky than others.
However, when the comparison reveals you’re riskier that your peers, your EMR rises. Conversely, when the comparison reveals you have fewer claims and a better safety record, your EMR falls. Lower ratings lead to lower workers’ compensation premiums.
Workers’ compensation compares your company’s actual losses to expected losses based on your industry type. Actual losses are what your company paid or expects to pay for a work-related injury or illness. To calculate expected losses, workers’ compensation uses the average claims for businesses of similar size and industry.
The comparison includes the last three years of data before the policy expiry date. For instance, a policy with an expiry date of July 2018 includes data from 2014, 2015, and 2016.
Calculations don’t end there, however. It is more difficult to estimate risk for small companies, because they file fewer claims plus a single major loss shouldn’t affect the EMR as much as a trending increase either. Consequently, workers’ compensation uses several additional calculations to adjust for these inconsistencies. The final formula determines your EMR.
EMR & Premiums
Workers’ compensation multiplies your EMR by the manual premium rate to determine your premium. A company with 1.25 EMR pays 25% more. A company with a 0.75 EMR pays 25% less.
Lowering Your Experience Mod
First, once workers’ compensation assigns your company an EMR, verify its accuracy with your insurance agent. Sometimes, mistakes can occur.
If your agent confirms it is correct, the only way to improve your rating is to improve workplace safety and reduce claims. Here are a few common strategies that may work for you:
- Screen potential employees – a thorough, legal screening process can minimize claims for unfit candidates.
- Actively manage risk – don’t wait for accidents and injuries. Develop programs to identify and prevent risks.
- Create a workplace safety program – OSHA states a good safety program can reduce incidents, reduce workers’ compensation costs and medical expenses, increase responsiveness to minimize claim length, and help your company avoid hefty penalties.
- Create a return-to-work program – return employees to the workplace as soon as they’re able to reduce your workers’ compensation costs and lower your EMR.
- Actively manage claims – focus on resolution and manage reserves to reduce claim costs.
- Train managers & supervisors – your key personnel needs to know how to support employees, encourage wellness, and get them back to work as soon as it is feasible.
We left the most important tip for last – partner with an insurance professional skilled in risk management. They’re experts who can identify problem areas and can suggest solutions. They can pinpoint trouble areas and suggest ways to improve workplace safety, reduce claims, improve your Experience Modification Rate, and reduce your workers’ compensation costs.