Experience Modification Rate, EMod, XMod, EMR, Experience Modification Rating, Experience Mod, etc. Whatever you call it, this number can have a profound positive or negative effect on your business.
Your company’s Experience Modification Rate (EMR) has a strong impact on a business. It is a number used by insurance companies to gauge the past cost of injuries and the future chances of risk at your business. 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. If your EMR rate is higher than it should be, you will pay more. There are other ways it could negatively impact your business; like the potential to lose your business altogether or lose money on the expense and revenue side of the equation!
Here’s how a high EMR impacts your business:
The higher the experience modification rate, the higher the premiums! If your EMR is overstated because your carrier may have misreported data or not followed NCCI rules or state regulations precisely, then you could be paying too much. There are numerous examples of how rate errors can multiply and result in harmful effects.
Here’s an example of what a high EMR can do. If you have an EMR of 1.2, your 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 now has a competitive advantage over you because they pay less for their insurance premiums and will price the job at a better rate.
There are many industries in which the submission of NCCI Experience Modification Rate Worksheets for new business proposals and contract renewals is common. Construction is one which comes to mind first for most people.
You will need an EMR factor below a certain threshold to win the business of any large or seasoned corporation and retain it annually. Think about the opportunities available within the construction, healthcare, utilities and transportation industries that you may be missing out on because your EMR is too high.
Make sure your EMR is accurate. Inaccurate rates means losing money unnecessarily and missing opportunities that would have turned a hefty profit for your business.
If you haven’t had an expert review your EMR, how can you know that your broker found your business the best possible rates from among the carriers with whom he/she does business?
Underwriters have various guidelines for writing business insurance lines. Experience Modification Rates, insurance policy classifications, class codes, premium size and credit history; they all come into play. Most significantly, your experience modification rate level is one of those guidelines.
Some of the underwriters and carriers with whom your broker does business with could easily decline to quote your business based solely on your EMR rate. And, here’s the crazy piece, you might never even know about it.
Want to know how Experience Modification Rates are calculated?
1. 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.
2. A comparison is made of past claims history to those of similar companies within your industry. If you’ve had a higher-than-normal rate of injuries in the past, it is reasonable to assume 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, 2013, the retro plan will look at 2010, 2011 and 2012.
3. 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 the 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. Having many small losses is seen as a sign that you’ll face even larger losses in the future.
4. 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 can you lower your EMR?
The good news is that EMR can be lowered. United Alliance Services Corporation can help!
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, being proactive will keep your EMR from increasing as much as it could without proper planning, training, and management. Having a plan to manage injuries and workers compensation claims is imperative for getting control of your EMR.
United Alliance Services Corporation 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 will save you money. Construction general contractors and owners are realizing the benefits of low EMR numbers and often prequalify companies before they even look at bids. Let us help you pre-qualify with a healthy EMR.
To get a better understanding of how United Alliance Services can work with you to lower your EMR, give us a call at: 877-399-1698 or request a quote for service here!