You’re here because of one complex and very important number: your Experience Modification Rate – or EMR.
Now, the number itself is small; the industry average floats at 1.0. However, this small number can have a big impact on your business. Namely, your Experience Modification Rate is the number that state agents look at in order to determine the overall risk your employees face on the job.
They then take your EMR and use it to determine how much your premium will be on workers compensation insurance.
So… how do these insurance agents calculate your Experience Modification Rate?
WHAT THEY LOOK AT:
- Your employee’s Class Code.
- This is the standard used to determine the inherent risk factors on the job. For example, a welder will have a different Class Code than a receptionist, because the welder is exposed to more potential hazards. You can find your employee’s NCCI Code, here. However, some States are independently mandated.
- Your payroll.
- Your real pay – not your gross pay – will be multiplied by an Expected Loss Rate, and then divided by 100.
- The data regarding workplace injuries within the last 3 years.
- Here, your insurance will be comparing the number provided by in step 2 to the number of workplace injuries within the last 3 years. This is to assess the overall assumptive risk involved in your actual operations.
All of this information is then compiled together, calculated with very complex caps, variables, and weights, and used to create your Experience Modification Rate.
HOW IT AFFECTS YOUR PREMIUM
Your EMR rate is then taken and multiplied against your insurer’s Manual Premium Rate to determine your workers compensation insurance premium.
HOW PAST INJURIES AFFECT YOUR EXPERIENCE MODIFICATION RATE
If you’ve had a few injuries within your workplace in the past few years, you might be worrying about how these claims will affect your premium.
To begin, let’s assume you had an average number of workplace injuries occur within the last 3 years. Your EMR should rest at 1.0, in that case. However, if you have had a higher rate of injury than what is considered average, your rate will be higher than 1.0; claim fewer workplace injuries than average, and you’ll have a lower EMR.
Let’s imagine that your current premium is $100,000. A 1.2 EMR would result in premiums 20% higher, or $20,000 more. Conversely, an EMR of 0.8 would result in a premium that is 20% lower, or $20,000 less.
That’s quite an extreme change in finances with a very small variation.
There are many things you can do, now, to effectively lower your Experience Modification Rate – but we can’t pack all of this into one article. Keep an eye out for our entire guide on how to do just that. Coming soon!