EMR - Experience Modification Rate
Experience Modification Rate (EMR) has strong impact upon a business.
It is a number used by insurance companies to gauge both past cost of
injuries and future chances of risk. The lower the EMR of your business,
the lower your worker compensation insurance premiums will be. An EMR of
1.0 is considered the industry average.
If your business has an EMR greater than 1.0 the reasons are simple.
There has been a worker compensation claim that your insurance provider
has paid. To mitigate the insurance company’s risk, they raise your worker
compensation premiums. The bad news is this increased EMR sticks with you
for 3 years.
Want to know how Experience Modification Rates are calculated?
How does a high EMR affect costs?
- The base premium is calculated by dividing a company's payroll
in a given job classification by 100, and then by a 'class rate'
determined by the National Council on Compensation Insurance (NCCI)
that reflects the inherent risk in that job classification. For example,
structural ironworkers have an inherently higher risk of injury than
receptionists, so their class rate is significantly higher.
A comparison is made of past claims history to those of similar
companies in your industry. If you've had a higher-than-normal rate
of injuries in the past, it is reasonable to assume that your rate
will continue to be higher in the future. Insurers examine your
history for the three full years ending one year before your
current policy expires. For example, if you're getting a quote
for coverage that expires on January 5, 2008, the retro plan
will look at 2004, 2005 and 2006.
NCCI has developed a complicated formula that considers the
ratio between expected losses in your industry and what your
company actually incurred, as well as both the frequency of
losses and the severity of those losses. A company with one
big loss is going to be 'penalized' less severely than a
company with many smaller losses, because having many small
losses is seen as a sign that you'll face larger ones in the future.
The result of that formula is your EMR, which is then
multiplied against the manual premium rate to determine
your actual premium (before any special discounts or
credits from your insurer). Essentially, if your EMR
is higher than 1.00, your premium will be higher than
average; if it's 0.99 or lower, your premium will be less.
How do I lower EMR?
An EMR of 1.2 would mean that insurance premiums could be as
high as 20% more than a company with an EMR of 1.0. That 20%
difference must be passed on to clients in the form of increased
bids for work. A company with a lower EMR has a competitive
advantage because they pay less for insurance
The good news is that EMR can be lowered. An effective safety program that
eliminates hazards and prevents injuries is the starting point. No injuries
equal no claims.
In the real world injuries will happen, but the response can help keep
EMR from increasing as much as it could with out proper management.
Having a plan to manage injuries and workers compensation claims is a
must to get control of the EMR.
Safety Management Group is a full service safety company ready to help
you get control of your Experience Modification Rates and reduce your
overall costs. Reducing EMR gives you an edge over your competition
when bidding out work and save money. Construction general contractors
and owners are realizing the benefits of low EMR numbers and often
prequalify companies before they even look at bids. It would be
unfortunate to lose business and money because of high EMR.
To get a better understanding how injuries cost you money, see our
true costs of injury calculator.
When you are ready to get a handle on your EMR gives us a call or
use our contact page.