What an Experience Modification Rate is in Workers' Compensation

What if your workers' compensation premiums could be lower simply by improving safety and reducing claims?

The Experience Modification Rate (EMR) is one of the most important factors influencing your workers' compensation insurance costs. It’s a numerical representation of your company's claims history compared to other businesses in your industry, reflecting the relative risk your business presents to insurers. 

Whether you're a small contractor or a large oil & gas company, your EMR directly impacts how much you pay for insurance.

In this blog, we’ll break down what EMR is and how it affects your premiums. Most importantly, we will help you with practical strategies to manage your premiums and improve your company's safety profile.

‍

What is EMR and Why Does It Matter?

The Experience Modification Rate (EMR) is a key factor in determining your workers' compensation premiums. It is a numerical value assigned to your business that compares your company's claims history to the average claims history in your industry.

An EMR of 1.0 is considered average, meaning your company's risk is in line with others in your industry. This system allows insurers to assess how risky it is to insure your business based on past workplace injuries and claims.

• Risk Assessment: Insurers use your EMR to assess the risk of insuring your business. A higher EMR indicates higher risk, while a lower EMR indicates a safer company.
• Cost Control: Your EMR can either increase or decrease your workers’ compensation premiums. A higher EMR leads to higher premiums, while a lower EMR can save your business money.
• Incentive for Safety: Maintaining a low EMR encourages you to invest in safety programs, reducing workplace injuries' frequency and severity.

Businesses that maintain a low EMR can see significant savings on their premiums. The workers' compensation industry achieved an underwriting gain of 16.0% in 2022. It indicates overall profitability, and your business can benefit from these savings by maintaining lower EMRs.

Now that we understand what EMR is and why it matters let’s explore how it directly affects the cost of your workers' compensation premiums.

The Financial Impact of EMR on Your Premiums

A high EMR can significantly increase your costs, while a low EMR can lead to considerable savings. Understanding how this rate affects your premiums and how to manage it is crucial for controlling insurance costs.

1. Debit and Credit E-Mods

• Debit E-Mod: A debit modifier occurs when your EMR is above 1.0, indicating that your business has a higher-than-expected claims history. This leads to higher premiums because insurers consider you to be at a higher risk.
• Credit E-Mod: A credit modifier occurs when your EMR is below 1.0, indicating fewer claims than expected. This results in a premium reduction because you are considered a lower risk.

2. Effect of a High EMR on Insurance Premiums

• Increased Premiums: If your EMR is higher than 1.0, insurers will charge you higher premiums. The higher your EMR, the more you’ll pay. For example, if your EMR is 1.5, you might end up paying 50% more than a company with a 1.0 EMR.
• Cost Burden: This additional cost can affect your overall budget, especially for high-risk industries where the impact of claims can be more severe.

3. How a Low EMR Benefits Your Company’s Competitiveness

• Lower Insurance Costs: Businesses with a low EMR pay less for workers’ compensation insurance. This is especially important in industries with tight margins, as lower premiums can significantly impact profitability.
• Improved Reputation: A low EMR not only lowers your premiums but also boosts your reputation. It shows that your company has a strong safety record, which can attract clients and investors.

In 2022, workers' compensation premiums in the industry grew by 11%, highlighting the rising costs businesses face. If your EMR is high, you will feel the effect of these premium increases more acutely.

The following blog is for you if you're interested in learning about workers' compensation premiums for self-employed contractors: Workers' Compensation Insurance for Self-Employed and Independent Contractors

To better understand how EMR influences your premiums, it's important to look at the factors that contribute to its calculation and how you can manage them.

Factors Affecting the Experience Modification Rate (EMR)

Several key factors determine your company’s EMR, and understanding these can help you control and reduce your premium costs. Let’s break down these factors:

1. Frequency and Severity of Claims

• Frequency of Claims: A company with frequent but minor claims will likely see a higher EMR. This is because insurers view repeated incidents, even if they are small, as indicative of a risky workplace.
• Severity of Claims: On the other hand, fewer, more severe claims can also lead to a higher EMR. Both frequency and severity are important, but frequent, smaller claims tend to have a greater impact.

2. Role of Safety Incidents and Claims History

• Claims History: Your past claims history plays a major role in how your EMR is calculated. Companies that have experienced frequent accidents or high-cost claims will have a higher EMR, indicating a greater risk.
• Safety Initiatives: A solid safety program can drastically reduce your risk profile, lowering the frequency and severity of claims and ultimately improving your EMR.

3. State-Specific Split Points

• Split points vary from state to state and directly impact your EMR calculation. In states like Texas, the split point for small claims may differ from other regions, affecting the impact of smaller claims on your overall EMR.
• Example: In Texas, the split point is $16,500. If a workplace injury results in a claim of $15,000, it will likely not be included in your EMR calculation because it is below the split point. This means that only claims exceeding $16,500 are factored into your EMR, reducing the impact of smaller claims.

If you want expert help in lowering premiums, contact TWFG Khan Insurance for a customized risk management strategy. We'll help you understand the complexities of EMR and ensure you're paying the right amount for coverage.

With these factors in mind, let’s dive into how your EMR is actually calculated and what it means for your premium costs.

How is Your EMR Calculated?

Calculating your Experience Modification Rate (EMR) may seem straightforward, but many businesses face challenges in the process. Let's dive into how your EMR is determined and what you can do to influence it.

1. The Calculation Formula

Your EMR is based on a formula that compares your company’s claims experience to the average experience of other businesses in the same industry. The basic formula looks like this:

• EMR = Actual Claims / Expected Claims
• Expected Claims are based on the average claims of similar companies in your industry.
• Actual Claims are based on the frequency and severity of claims your company has experienced.

If your actual claims exceed expected, your EMR will be greater than 1, leading to higher premiums. If your claims are lower than expected, your EMR will be lower than 1, resulting in lower premiums.

2. The Role of the National Council on Compensation Insurance (NCCI)

The National Council on Compensation Insurance (NCCI) plays a vital role in calculating EMRs. They collect and analyze data from businesses across various industries, helping insurers set the expected loss data used in EMR calculations.

• Industry Benchmarking: The NCCI provides industry-specific data, which allows businesses to compare their claims history with others in the same industry.
• Standardization: NCCI ensures that the EMR calculation is standardized across states, offering a consistent and fair method for determining premiums.

3. Payroll Size and Classification Codes

Your company’s payroll size and classification codes also affect your EMR. Payroll size reflects the number of employees and their wages, while classification codes categorize the type of work performed.

• Classification Codes: The type of work your employees perform (e.g., heavy machinery, office work) determines the classification code. Some industries, like construction or maritime, have higher risk and, therefore, higher premiums.
• Payroll Adjustments: A company with a larger payroll may see an adjustment to its EMR because the greater the number of employees, the higher the potential for claims.

If you want to ensure your EMR is as low as possible, contact TWFG Khan Insurance today. We’ll help you analyze your claims history, adjust your payroll classifications, and optimize your premiums.

With a clear understanding of the financial impact of EMR, let's discuss practical strategies you can implement to lower your EMR and save on insurance costs.

Effective Strategies to Reduce Your EMR

Maintaining a low Experience Modification Rate (EMR) is key to controlling your workers' compensation costs. Fortunately, you can implement several practical strategies to lower your EMR and keep your costs down.

1. Building and Maintaining a Robust Safety Program

One of the most effective ways to lower your EMR is to focus on preventing workplace injuries. A strong safety program can reduce the frequency and severity of claims, directly impacting your EMR. The key elements of a safety program include:

• Regular Training: Provide employees with ongoing safety training and ensure they understand the risks associated with their roles.
• Safety Audits: Regularly inspect your workplace for potential hazards and take corrective actions before accidents happen.
• Employee Involvement: Engage employees in safety initiatives and encourage them to report unsafe conditions or behaviors.

2. Proactive Steps to Improve Workplace Safety

Proactive safety measures can prevent accidents from occurring in the first place. Even small changes can lead to significant improvements in your EMR over time. Examples of safety improvements include:

• Installing proper signage in high-risk areas.
• Using personal protective equipment (PPE) and ensuring it is maintained.
• Implementing ergonomic solutions to reduce workplace strain and injury.

3. The Importance of Timely Claim Settlement and Resolution

How quickly and effectively you handle claims can also impact your EMR. Settling and closing claims promptly reduces the impact on your EMR and can help prevent a spike in your premiums.

• Ensure injured workers receive the appropriate care and support to return to work quickly.
• Keep detailed records and stay involved in the claim process to ensure it is handled efficiently.
• Work closely with insurance experts like TWFG Khan Insurance to close claims immediately and avoid extended liability periods.

If you want to understand the differences between Employer's Liability Insurance vs. Workers' Compensation, check out our blog here.

How TWFG Khan Insurance Can Help

Managing your Experience Modification Rate (EMR) is crucial for controlling your workers’ compensation premiums. At TWFG Khan Insurance, we specialize in helping businesses like yours navigate the complexities of EMR and reduce your insurance costs.

• Claims Management Expertise: We guide you in handling claims efficiently, ensuring timely settlements that positively impact your EMR.
• Risk Analysis: Our team thoroughly analyzes your past claims to identify patterns and recommend strategies to improve your risk profile.
• Customized Insurance Solutions: We offer insurance policies that are specifically designed for your business type and its unique risk factors.
• Ongoing Support: We provide continuous assistance, ensuring you stay on track with your safety initiatives and EMR management.

With the right guidance and proactive strategies, you can take control of your EMR and reduce the financial burden of high premiums.

Get a quote with us to see how we can help lower your EMR and save your business money on workers' compensation premiums.

‍