Commercial business owners may have heard about the Experience Modification Rate (EMR), but may not be sure what it is or how it’s calculated. It’s important to understand because it can affect your workers’ compensation insurance premiums. And having an expensive ex mode workers compensation policy can take away from money you could end up spending elsewhere. This is especially true for certain industries, such as construction and manufacturing, where a high EMR can end up costing you jobs and bids.
What is an Experience Modification Rate?
The Experience Modification Rate is a numeric representation of a business’s workers’ compensation claims history and safety record as compared to other businesses within the same industry. An EMR usually states if a company is riskier than average, no more or less risky than average, or is safer than average.
Essentially, the EMR is calculated based on the job code, a company’s past losses, the premium itself, and the payroll. From there, the EMR is used to determine the final Workers’ comp premium. For companies with more of an average risk, they can end up paying somewhere between 15-25% in higher premiums, depending on the state they operate out of.
What is an Experience Mod and How is it Calculated?
An experience mod compares a company’s workers’ compensation claims experience to other employers of similar size operating business in the same industry. This is the method for tailoring the cost of workers’ compensation insurance to the characteristics of a specific business, but it can also give that company the chance to manage its own costs through cost-saving programs.
When it comes to calculating the experience mod, it can end up being a little complex. How it works is that a company takes its actual losses and compares them to its expected losses by industry type. Factors taken into consideration are size of the company, unexpected large losses, and the difference between loss frequency and severity.
The National Council on Compensation Insurance (NCCI) calculates the Experience Mod unless an independent agency is called on to do it. Experience rating is a mandatory plan that applies to all businesses that meet a state’s premium eligibility criteria for the plan.
Maintaining Lower Experience Mods
There are a number of ways in which a business can save money with a lower experience mod in workers’ compensation. First, it’s important to note that the experience mod is influenced more by small and frequent losses than by large, infrequent ones. So, the fewer the losses, the better. Next, a business should create a sound safety program and review it on a regular basis so that employees are kept as safe as possible and less claims are made.
To help lower premiums, businesses can also implement an active workers’ compensation claims management program to manage any outstanding reserves and focus on how to efficiently resolve open claims.
Lastly, companies can practice due diligence during their hiring process. Hiring an employee who is not cut out for essential job functions will end up increasing the risk of an injury.
About InsureMyWorkComp & Their Workers Comp Solutions
InsureMyWorkComp is a digital brokerage that helps clients find the right workers’ compensation solution for their business needs, such as occupational accident insurance. Unlike other online platforms, we will help you to work with an agent who can provide you the right solution for your risk profile. Our staff has over 50 years of workers’ compensation underwriting and sales experience, and we are confident that we will provide you the support that you need. For more information or to get a quote, contact us today at (855) 340-9138.