Property Casualty

A Mythical and Misunderstood Number: EMR 101

Collin Forst
Collin Forst
Account Executive

If you’re like some employers, each year brings about a level of suspense as you wait for a new, significant number to be calculated and you can finally determine what impact (positive or negative) the mythical number will have on your workers’ compensation premiums.

Now, despite the significant impact your experience modification number has on an employer’s workers’ compensation insurance costs, it’s often a misunderstood number — and one that is more controllable than often times thought.

What I’m talking about is the experience modification rate (EMR). If you’re not familiar with it…I’m about to introduce you to it. If it’s just simply confusing, I get it (and you’re not alone)!

I’m by no means a teacher, but hopefully with the quick lesson below, I can help everyone get a clearer picture of why this number is so important and how it impacts a company’s premium.

And just like in the classroom, there’s a bonus — only it’s not in the form of a question for extra credit. In this case, I’m going to clue you in on two simple, yet powerful, things you can do to influence your experience modification rate more effectively (and lower your total cost of risk!). 

What is an experience modification rate?

At its most basic level, a company’s experience modification rate is a ratio of actual losses to expected losses based on a three-year, rolling period. This does not include the most recent year.

For example: In calculating a 2017 EMR, the policy years taken into account would be 2013, 2014, and 2015. The most recent, the 2016 policy year, wouldn’t be taken into account due to the “greenness” of the policy term and the lack of development in claims.

How Does the EMR Impact Your Workers’ Compensation Premium?

The ratio discussed above is compared to companies of similar size within the same industry — with 1.00 being every company’s “average.” This means the frequency and severity of losses incurred were equal to what was expected.

With that said, a mod below 1.00 will receive a workers’ compensation premium credit based on the percentage below their average mod of 1.00. Those companies who have a mod above 1.00 will pay additional premiums based on their percentage above the average. 

How Can You Influence your EMR?

All companies want a good experience modification rating, right? Who wants to pay more in workers’ compensation premium? No one!

Well, then, how can you achieve this?

Aside from continuing to enforce effective safety and loss control strategies within your organization, there are additional ways your company can influence the mod.

Talk to Adjusters Beforehand

Approximately six months following policy inception, the National Council on Compensation Insurance (NCCI) will request updated loss information from your carrier to calculate the experience modification rate for the coming year. Now, when NCCI pulls the respected loss runs, the council will calculate your upcoming EMR based not only on what workers’ compensation claims have been paid, but also the total reserve amounts.

With this said, an effective strategy for ensuring there isn’t an “over reserving” of these claims is to have conversations with the handling adjusters prior to the loss runs being pulled. The key word there is “prior”! If you’re successful in lowering reserve amounts (or closing the claim), this will directly impact your mod, which, in turn, will lower your workers’ compensation premiums.

Experience Rating Adjustment for Medical-Only Claims

Over the past several years, the NCCI has implemented an Experience Rating Adjustment for all medical-only claims to encourage reporting. What this means for you as an employer is that for all medical-only claims, you’ll receive a 70 percent discount on the workers’ compensation claim amount that’s applied to your EMR.

For example: If you’ve got a $10,000 medical-only claim, only $3,000 will be applied to your experience mod. However, if that claim has any loss time attributed to it, all $10,000 will be applied to the experience mod, having a far greater impact on your ultimate costs. Keep in mind, this 1-year discount doesn’t impact the EMR for just that year but actually three years due to the fact the rate is based off a 3-year rolling period.

What Tool Does Holmes Murphy Have in Its Belt to Help?

The key to the experience modification rate is being aware! Holmes Murphy has countless predictive modeling tools that can both project a future EMR, along with verify the accuracy of a current rate. This data can be used to project costs, determine the advantage/disadvantage you have in comparison to your competitors, and give you a better understanding of the potential return on investment (ROI) from improvements to your EMR.

After all that, I’m sure you have questions! What are they? How can we help? Let us know by commenting below! We’re here to assist in any way that we can.

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