Your Experience Modification Rating (EMR) Factor and How it Affects Your Workers’ Compensation Insurance
There is no shortage of confusing insurance terms.
And workers’ compensation may take the cake as the type of insurance with the most confusing terms.
How about experience modification rating factor? Are you familiar with that one? Or maybe you’ve heard it referred to as an EMR.
Either way, it’s a confusing subject. But it’s really important! The EMR is actually the most important factor in determining your workers’ compensation insurance cost. So you probably want to know what it is and how to control it …
We can help you with that! At Berry Insurance we answer plenty of our commercial insurance clients’ EMR questions including what it is, how it affects their insurance, how they can improve it, and why someone might request it; and in this article, we’ll go over what we tell them.
What is an experience modification rating (EMR?)
An experience modification rating is a metric used to calculate a company’s workers’ compensation premium, based on their number of claims and the claim costs over the past three years.
It’s kind of like a credit score for workers’ comp!
The number represents a ratio of a company’s cost of workers’ compensation claims compared to companies of similar size and industry.
Essentially, it portrays the risk of insuring or working with your company, compared to your competitors.
The purpose of the EMR is not only to determine risk, but also to provide an incentive to companies to provide safe workplaces. If a safer workplace yields lower insurance premium, companies may be more motivated to implement certain safety procedures.
The rate is calculated using the last three years of claims data (excluding the most recent year) and may also factor in the size of your payroll.
How does my experience modification rating (EMR) affect my insurance?
An EMR is one of the largest factors that go into determining a workers’ compensation premium.
Like any other type of insurance, the riskier you are, the more you will have to pay.
This is because if insurance companies expect to have to pay out more in claims for a particular company, they want to make sure to recover some of that through your premium.
Generally, if your number is above 1.0, that means you have a greater risk than your competitors of having a workers’ comp claim.
For example, if your EMR is 1.3 and your competitor’s is 1.0, your premium could be $13,000 while your competitor’s could only be $10,000.
(But we’ll get more into what numbers are considered good and bad later on.)
Why did someone request my EMR history?
In addition to determining your workers’ comp premium, an EMR can also determine if other businesses/contractors/entities are willing to work with you.
When trying to secure contracts for projects or partnerships, the other entity may request your EMR to evaluate the risk of working with you.
These entities want to be responsible and make sure you provide a safe workplace before deciding whether to work with you.
If this is the case, they may ask you to provide a copy of your EMR letter.
So how do you get one?
If you already have an updated EMR worksheet, the contractor may accept a copy of that, but if not, you will need to contact your insurance agent to get an EMR letter with your current rating.
What is a good EMR? How can I improve it?
When it comes to an EMR, the lower the better!
The lower your number is, the lower your workers’ comp premium is, and the more likely partners are to work with your company.
Typically, the EMR benchmark is 1.0. If your number is lower than 1.0, you have less workers’ comp losses than comparable businesses and your premium will be lower. If your number is higher than 1.0, you have more workers’ comp losses than comparable businesses, and your premium will be higher. If your rate is above 1.0, that probably also means you have a slimmer chance of securing business contracts.
How you can improve your EMR:
If your EMR is higher than you want it to be, there are ways to lower it over time (though these are good practices to be doing anyways.)
Reduce claims: The number of claims is the number one thing that will drive up your EMR. So to improve your EMR, you will need to reduce claims. We know that is easier said than done, but don’t worry, we’ll offer some more advice on how to do this below. Remember, your workers’ comp data from the past three years (excluding the most recent) determines your rating, so if old claims drop off without having any new claims, your rating will go down.
Handle claims quickly: In addition to claim frequency, another EMR factor is the timeliness in closing claims. Insurance companies want as few open claims as possible, so lengthy claims will negatively impact your EMR. To expedite claims as much as possible, you should make sure you are aware of how the claims process works and be prepared to navigate each step as soon as you are able to. If you want to familiarize yourself with the claims process, check out this article: What to Do When an Employee is Injured (and How to File a Workers’ Compensation Claim)
Implement a safety plan: The easiest way to reduce claims is to implement a thorough safety plan. This should include risk identification and management and ongoing safety training with all employees. You could even consider establishing a safety committee or using a safety or incident management software.
Develop a return to work plan: The longer an employee is out of work, the more workers’ compensation will have to pay them, which will increase your EMR. That’s why you should have a plan in place to help return injured employees to work as soon as possible. This could include a light duty policy, which will allow employees to return to work without having to do any duties that will aggravate their injury.
If you work with Berry Insurance, we can provide sample safety plans, return to work plans, and other safety tools to help employers manage claims before they ever become a problem.
To learn more, check out this article.
Protect your employees for the sake of your business
We hope as a business owner, the safety of your employees is already of the utmost importance. But if you need any more of a reason to prioritize it, your EMR should do the trick.
Since your EMR influences your workers’ comp rate, having a low EMR will help you save potentially a good chunk of money on your workers’ compensation premium. And who doesn’t want to do that?
We explained how the EMR affects your workers’ comp cost, but we’re sure you still have another big question on your mind. How much should you expect it to cost?
With so many variables at play, that’s a tough question to answer, but we attempt to do it in this article: How Much Does Business Insurance Cost?