Experience Modification Rate impacts your insurance costs. Insurance companies use the numeric value of your EMR rating to decide how much you should pay in premiums. The lower the number, the less you pay.
Essentially, the Experience Modification Rate tells insurance companies how your business compares to similar businesses as far as how many claims your business made in the past. The point is to find out how risky it is to insure you.
Now, if you’re like most people, you probably want to know how to keep your premiums low. First, you have to understand how EMR works.
How Do They Calculate Experience Modification?
The process behind calculating the Experience Modification Rate has a lot of factors. What happens is that you have your losses compared to another business in the same industry. The insurers consider your business’ size and any unforeseen large losses. They also look at the differences between your loss severity and the frequency of the losses.
The National Council on Compensation Insurance calculates your workers’ compensation experience modification in most states. However, some states do use an independent agency. These agencies use data from three years before the previous year. The NCCI has a specific worksheet for making claim calculations. With the different factors, the general formula varies.
How Do They Decide What Affects My Premiums?
Every company has a premium to start with. It bases this premium on your payrolls, classification codes and other insurance rates. In the industry, this is referred to as the pure premium. Now, think of the pure premium as the base or foundational premium. The agencies apply the EMR after.
The average EMR is 1.0. If you have an average EMR, then the agency won’t make any modifications to your premiums. However, if it is above 1.0, then you would have to pay more on your premiums.
Likewise, if your rate is lower than 1.0, you could find yourself with lower rates than the base rate. While there are other factors that go into your premium costs, the EMR is by far one of the more important factors.
How Do You Lower Your Premium Costs?
As a business owner, this is the next natural question. You know what the Experience Modification Rate is, but now it’s time to make sure the premiums on your workers’ compensation program stay low. If you want to lower your EMR, it’s going to take you some time. These rates don’t change overnight. Here are a few solid tips for lowering your rates and creating a safer workplace:
- Train your employees in safety.
- Only hire employees fit for the job.
- Report any injuries as soon as they happen.
- Small and frequent losses affect your score the most, so focus on fewer losses.
- Train supervisors on handling injured employees.
- Create a safety program for workers.
- Guarantee that your EMR is accurate.
When it comes to your Experience Modification Rate, it’s important to have all the facts before you worry about lowering your premiums. Changing your rate takes time and effort to make your business a safer environment.
