November 9, 2022

The Workers’ Comp Experience Modification Rate (EMR) Described

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Experience usually equates as a good thing, right? Well, yeah, most of the time, but when it comes to your workers’ comp Experience Modification Rate, or EMR, it’s a pretty bad thing that can cost you. So let’s get a basic understanding of what it is, why it matters, and what you can do to reduce your costs as they relate to EMR. 

“What is EMR?”

 

Good question! 

In a nutshell, every business has an EMR score if they’ve been in business long enough. It pits your business against similar businesses at a similar scale to give an apples-to-apples look at losses in that industry. If your business has more claims, or losses, than a similar business doing similar work at a similar scale, your score will be higher. 

This comes to play in your premium formula. Here’s what that looks like:

YOUR PREMIUM = Class code (given to specific industries and is standardized) x payroll/$100 x EMR +/- adjustments. 

It can take up to three years for an EMR to be established, and 1.0 is the base score. This is because you probably (in your first three years) haven’t established a claim history deep enough for a score to be established.

When it is established, the 1.0 score means you’re on par with similar businesses in your industry. Your score can go up if you have more losses (claims) than are standard in your vertical with respect to the parameters mentioned above. If your claims are higher than standard, an example score could be 1.3. This would equate to rates up to 30% higher than where you were before or where other businesses are with a 1.0 score. 

Conversely, a lower score (sub 1.0) is possible and has a big effect on premiums. If your score is .8, for example, your savings can be close to 20% regarding your workers’ compensation premiums. That’s significant. 

So what’s the takeaway here? You want to keep your score at or below 1.0 to dampen costs for your workers’ comp package. Savings can be found in risk mitigation.

NOTE: Medical-only claims have a limited impact on your EMR score. 

“So What Does Effect My EMR?”

 

Generally speaking, any workers’ comp claim CAN affect your score. That doesn’t mean that all losses are equal or that they all get calculated. Small claims will have a smaller impact than those larger ones. Sliced finger? Small claim, small effect. Drop a beam on a manned dump truck that injures the driver? Big claim, BIG effect. 

Claims that are open when it comes time for your insurer to evaluate your workers’ comp policy renewal terms can have a massive impact on what you pay, too. It’s in your best interest to work with your insurer to get claims closed as quickly as you possibly can, especially if there are outstanding ones around renewal time. It’s absolutely within your rights to ask how long settling a claim will take in order to budget time and expenses.

Frequency, as you would probably anticipate, plays a part here, too. Multiple claims in a given time, even if they’re small, can impact your score in a negative way. Claim frequency is more important than claim severity. In fact, the National Council on Compensation Insurance (NCCI) states “the cost of a specific accident is often left to chance and is statically less predictable than the fact that the accident occurred.” Luckily, EMR doesn’t look into the past in perpetuity, but instead, it only considers the last three years. This gives your company a fresh chance as you establish better loss records. 

Open vs closed claims affect your EMR in a logical way. The faster claims are closed, the less impact your EMR will feel because, as a general rule of thumb, the faster a claim is closed, the less is paid out

Employer size plays a part. Larger employers may only have a rating against themselves if they are established enough. This can negate state minimums, too. Smaller employers will usually always be compared within their industry/peers. 

Insurers set reserves, which is the highest dollar amount, in total, they forecast any particular claim to cost them as the payer. If these reserves aren’t adjusted (they are rarely paid out at the full forecasted amount), your EMR could be inflated. You have the right to have that reviewed as frequently as quarterly and is a recommended best practice for employers. 

“How Can I Control My Costs Tied to My EMR?”

 

The simplest answer to this question is “keep your risks in check.” Easier said than done, right? 

Make safety a priority. Nothing can mitigate costs better than not having claims in the first place, but in reality, things happen and insurers know that. When things do happen, the best thing you can do is stay vigilant with getting the claim processed as quickly as possible. It goes back to the idea that an open claim, in the eyes of your insurer, has an “infinite” (for lack of a better term) possible payout for the claimant. Stay plugged into the claim and work with your insurance to get closed quickly. 

Beyond that, there are a few things you can do to keep things in check. Partner with an agent or broker who prioritizes reducing your EMR exposures. Insurers don’t want to have to pay out on claims. If they’re willing to work with you to get claims down by any means possible, you know they are working to get your EMR in the right spot. These carriers are often monoline carriers, meaning they only do workers’ compensation, which allows them to stay competitive in this space. 

Did you know there are services out there to prescreen your job applicants? If you hire people with good safety records, that could mean serious upstream savings for you. If a quality hire comes along who lacks the training but shows promise, invest in training them on safety. In fact, yours may be one of the many companies that require safety training; take that seriously so your workers know it means something, not just for them, but for the longevity of the company as a whole. Some states even require insurers to give a discount to companies that have a documented safety plan in place. 

Establish a return to work plan for employees who incur a claim. The faster you can get them back, the less is paid out for comp and the sooner you can regain the lost productivity. You can ask your carrier to help you put a plan together for each role in your organization. It’s in their best interest to get them back in the field, too. 

The last big step you can take is being proactive on your “rating anniversary date” which is the midway point in your workers’ comp policy; this is when your insurer reevaluates your policy, so you want to know where your outstanding claims are at least one month before this date to get any loose ends tied up. Remember: outstanding claims are often more derogatory than past/closed claims. The uncertainty that an open claim presents is significant and should be a priority to clean off your plate before your anniversary date. Again, reaching out to your adjuster to see where they are on open claims is well within your rights. 

Your Next Steps

 

Your EMR is like a credit score for your workers’ comp policy, except for this score, we want the number as low as possible. Taking some initiative toward keeping it in check can pay dividends in the form of savings. Make safety a top priority. 

Knowing where your subcontractors stand with their own coverages is equally as important. If you’re managing multiple subcontractors, chances are pretty good that you’re also tracking their certificates of insurance. That can be tedious and leave your neck on the line if things go awry. Partner with myCOI to help. You could be saving up to 30% of the time you spend requesting, tracking, and managing COIs. We automate it.

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