According to the US law, workers’ compensation insurance is mandatory for employers to protect both employees and themselves. According to Charles Spinelli, the Experience Modification Rate (EMR) is an important component used by insurers to figure out workers’ compensation premiums to be paid by employers. Understanding EMR can help businesses manage costs and improve workplace safety.
What is the Experience Modification Rate (EMR)?
Insurance companies use this number to determine the workers’ compensation insurance premiums that businesses will have to pay. For this, the company’s past claims history is compared to other companies in the same industry. A lower rating indicates fewer claims and less risk. If the EMR is high, insurance companies consider the business unsafe and at risk of facing many claims.
The average EMR stands at 1.0. If the EMR of a company is lower than 1.0, the insurer will charge a lower premium than the standard. However, if the EMR goes over 1.0, the company has to pay considerably more.
How is EMR Calculated?
Insurance providers calculate EMR based on three years of a business’s claims experience, not including the latest policy year. They compare the number and cost of actual claims to similar businesses’ expected claims.
The formula takes into account:
Frequency of claims: How frequently workplace injuries occur.
Severity of claims: Cost and severity of the injuries.
Industry averages: Anticipated claim levels for similar businesses.
If an insurer has more frequent and dangerous types of claims than normal, the EMR typically rises. Conversely, if it has fewer or cheaper claims, the EMR falls.
Why EMR Is Important for Businesses?
According to Charles Spinelli, the EMR has a direct impact on the cost of workers’ compensation insurance. A small variation in EMR results in considerable differences in premiums. For instance, a company that has an EMR of 0.80 pays 20% below average, whereas a company with an EMR of 1.20 pays 20% above average.
A low EMR can also enhance a company’s reputation. Most clients, contractors, and partners would rather do business with companies that enjoy good safety records. In certain industries, a high EMR can even exclude a company from bidding on a contract.
Strategies to Lower EMR
Businesses can undertake several measures to lessen EMR as stated below:
Safety Training Comes First: Perform frequent safety training and inspections.
Report accidents immediately: Timely reporting can help manage claim expenses.
Provide return-to-work programs: Returning injured workers to light-duty can reduce claim costs.
Investigate incidents: Identify and correct causes of workplace accidents.
Collaborate with insurance companies: Utilize available safety materials and risk management techniques.
Misconceptions Regarding EMR
Some entrepreneurs believe EMR only captures major accidents. In fact, minor claims can elevate the EMR if they occur frequently. Others have the misconception that EMR immediately adjusts after enhancing safety. In reality, there is a lag time because the calculation depends on three years’ worth of history.
While a consistent EMR can be helpful to minimize premiums, an increased EMR can have the reverse result. By managing EMR, as advised above, companies not only protect their workforce but also reach the bottom line of business.
