An EMR or experience modification rating is a number that is used to price workers’ compensation insurance premiums. Worker’s compensation is a payout in the event of an on-the-job injury. An EMR rating is similar to a credit score, as it draws data from your history to predict future liability. Based on your company’s EMR rating, an insurance company can assess the cost of past incidents and approximate future risks.
There is a standard formula used by insurance agencies to calculate your EMR rating. This formula takes into consideration your amount of employees, the number of workplace injuries, and the average cost of workplace injuries. Be mindful that insurers calculate your EMR rating based on three years of workers’ compensation history (ending one year before your current policy expiration date).
The base worker’s compensation insurance premium is calculated by dividing a company payroll in a given job classification by 100, and then by a “class rate” fixed by the National Council on Compensation Insurance (NCCI) that reflects the inherent risk in that employment category. A comparison is then made between your past claims and those of similar companies in your industry. If your company has, on average, more injuries than other companies in your industry, then the insurance companies assume that you will continue at the same rate of injury in the future. A company with one big loss is considered less risky than a company with many smaller losses because having many small losses statistically predicts a future large loss.
The result of these calculations and comparisons is your EMR, which is then multiplied against the manual premium rate to determine your actual premium. The average EMR is 1. Any rating higher than 1 equals a higher-than-average premium, and anything lower than 1 equals a lower-than-average premium.
Your EMR rating affects your business because it affects your insurance budget. For instance, if you have an EMR of 1.4 and the average workman’s compensation insurance premium is $50,000, then your company will need to pay $70,000 ($50,000 x 1.4). Conversely, if you have an EMR rating of 0.8, you will pay $40,000 for the same premium ($50,000 x 0.8). Having a lower frequency of workplace injuries can drastically affect your company budget. A low EMR rating means you can save on insurance and spend your money elsewhere.
Aside from monetary implications, your EMR rating communicates the safety of your workplace. If you have a high EMR rating, you may want to reconsider your company practices and strategize ways to better protect your employees from on-the-job injuries. A safer workplace is a better environment for everyone.
As EMR ratings are calculated based on three years of company history, lowering your EMR rating requires long term focus. Over time, you can improve your EMR rating by implementing safety programs and regularly scheduling safety training courses for your employees. Additionally, you can keep detailed records of claims filed by your employees, as well as the cost and frequency of incidents. By recording incidents within your company, you can notice trends and areas that require attention before it is too late. Finally, you can improve your EMR by being selective in your hiring process. Implement a pre-employment physical exam, drug test, and orientation training to thoroughly vet each employee before bringing him or her onto your team.