The Experience Modification Rate is a rating your insurance company uses to determine the amount of risk your business carries. Your EMR score is a metric that illustrates your overall safety record; it dictates the premium you pay for your worker’s compensation and employer liability insurance.
Known as your EMR, MOD Rate, Experience Rating, or E-Mod, your score impacts more than just your annual insurance premiums. It also affects the success of your bids.
To arrive at your EMR, your insurance carrier provides to the National Council on Compensation Insurance with your class code, payroll, and workers compensation losses.
Spelling out the EMR
Your EMR is calculated using your company’s safety record and history of insurance claims, as well as data on other businesses of similar size in your industry and within the same state—your “class code”.
To determine your EMR, your insurance carrier provides to the National Council on Compensation Insurance (NCCI) or appropriate state agency with your class code, payroll, and workers compensation losses from the past three years.
A simplified calculation of your EMR consists of dividing your Actual Losses by your Expected Losses:
- Actual losses are those losses determined by the actual claims you had.
- Expected losses are calculated by multiplying your payroll by the Expected Loss Rate of your class code and dividing the result by 100.
To put it another way, the insurance industry has a predefined expected loss rate for each job category that it uses to calculate the Expected Losses. The actual losses are the true losses shown by the worker’s compensation claims you made.
A ratio of your actual losses to your expected losses indicates the level of risk the NCCI believes your company represents. The lower your actual losses, the lower your EMR, and a lower EMR could mean a discount on your insurance premiums for the following year.
The industry average for EMR is set at 1.0. If your EMR is 0.7, it means your company is 30 percent better than average. A score of 1.3 indicates a record that is 30 percent worse—and your worker’s compensation premiums are set accordingly.
Variables impacting your EMR
Your EMR rating is influenced by three main variables:
- The frequency of claims you submit.
- The severity of the claims.
- The company payroll per $100.
Frequency of claims outweighs severity in the EMR calculation, preventing one extreme loss from overwhelming the data. A high frequency of claims is considered a harbinger of poor safety controls and lack of management oversight—a bigger problem in the insurance industry’s eyes than a single large claim.
Payroll provides a measurement of expected losses. Companies with fewer employees and a lower payroll are expected to have fewer claims than a large company, with a concomitant reduction in total monetary loss incurred. However, larger companies with a more expansive payroll have the potential to receive a bigger credit on their premiums if scored with a lower than average EMR.
Steps to lower your EMR
EMRs may seem like a judgment you must suffer and can’t get away from, but it is within your power to reduce your EMR and thus your worker’s compensation premiums. Here’s how:
- Select top-level leaders who champion safety and who commit to periodic site visits to reinforce the importance of safety at the job site. The best leaders will extend the discussion of risk management beyond the construction site to the company as a whole.
- Work toward employee buy-in. Train workers to do more than identify risks. Assign high-performing employees to act as a trusted resource for questions or clarification. Show the project teams their feedback is valued.
- Create a culture where safety comes before productivity. Know perfection is impossible, but strive for it anyway. Celebrate the successes that are critical to reducing your EMR score.
If everyone in the company endeavors to maintain a safe workplace, your EMR scores will fall along with your premiums.
One more reason your EMR is important
Besides the potential for lower workers’ compensation premiums, your EMR indicates your safety record to potential clients. Over the years, those bidding out projects have learned to pay attention to the EMR rating of a construction company. A bid may require you to report not only your OSHA violation history but also your Experience Modification Rate.
Most insurance carriers provide an annual Experience Modification Rating Sheet before your policy renewal date. You can also find it on the declarations pages of your worker’s compensation policy.
Your EMR is one of the factors clients use when determining to whom they should award their projects, because it is highly indicative of your safety record. Reducing it will earn you lower insurance premiums and more jobs.