Experience Modification Rate, often referred to as EMR, is the calculation made to determine a company’s cost of injuries and its projected future risk. EMR correlates directly to your company’s workers compensation insurance premiums; a low EMR results in a lower premium, while a high EMR results in a higher premium. Seems simple enough, right? In this two-part blog post, we’ve tackled EMR and broken it down to explain exactly what effects it has on your business, and what you can do to control it.
It’s easy for insurance companies to just rattle off a list of numbers at you without any real explanation of why you’re paying what you’re paying. At Contractors Insurance, we think it’s important for you to know all the facts that are pertinent to your business, so we’ve outlined just how EMR works and is calculated to make sure you’re as informed as possible!
In assessing EMR, the working industry average is measured at 1.0. Companies with an EMR over 1.0 are considered to have a rate that is higher than average, likewise, companies with an EMR less than 1.0 are considered to have a rate that is lower than average. An EMR over 1.0 is the result of previous worker’s compensation claims that have been filed and paid out. Insurance companies raise the premiums required of all companies with an EMR over 1.0 in order to cover the risk they take by insuring said companies. Once your insurance premium increases due to a high EMR, you’re stuck with that rate for three years! Ouch!
Here’s how to calculate your EMR:
An insurance base premium is calculated by job classification, so for the purposes of this post, let’s say we’re talking about carpenters. First, you take your payroll total for all carpenters in your company, and divide that number by 100. Next, that number is divided by a ‘class rate’ for all carpenters, which is determined by the National Council on Compensation Insurance (NCCI). The class rate indicates how risky a particular class of employment is, therefore, the rate for carpenters will obviously be higher than the rate for an office worker.
With that number in mind, your next step is to compare your company’s history of insurance claims to those of your industry competitors. If your injury rates are higher than average, we assume that your rate will be continue to be higher.
The NCCI has a complex formula to measure your company’s anticipated losses against what your company actually sustained, in addition to the frequency and severity of those losses. When evaluating this ratio, the score for a company with one large loss will suffer less than that of a company with several smaller losses, because their frequency is indicative of many larger losses to come. This formula produces your actual EMR, and that is multiplied by the premium base we just established, which would determine how much your premium will ultimately cost.
Stay tuned for part two of our breakdown of EMR and its effects!