In any type of business or industry, there is always the chance of an injury on the job that results in a workers’ comp claim or a claim against the insurance provider if workers’ compensation is not required for the business.
In some types of jobs, the risk of an injury is very low, with the types of injuries often minor and requiring limited medical services, time off from work, or short or long-term disability concerns. Other industries, like the construction industry, are more likely to have serious injuries that may lead to short or long-term disability.
To address this difference between companies, the insurance industry has created a rating number. This number is known as the EMR or the experience modification rate, and it tracks prior workers’ compensation claims for a business, while also assessing the future potential risk for additional injuries and claims.
The EMR is also a clear picture to prospective customers as to the safety focus for the company. Lower EMR numbers reflect fewer claims and injuries with a focus on ongoing safety for teams and crews.
How the EMR is Developed for a Business
New businesses start with an EMR of 1.0. This is neither positive or negative, and it reflects the lack of past information on the workers’ comp claims against the company. With the EMR of 1.0, the business pays the standard workers’ comp without any type of multiplier in place. This rating of 1.0 is typically in place for three years, allowing time for data collection on the claims against the company.
This information is then used by the insurance company to compare your business and the losses over your business history to the standards in your industry. This makes it fair for all, with industries with a higher risk of injury, such as construction companies or service companies, not unfairly penalized for a higher overall injury frequency.
As long as the business is at the industry level, the EMR stays at 1.0. If the business is able to lower their injury rates and workers’ comp claims, their number drops below 1.0. When the claims and injuries are above the industry level, the EMR increases to some number above 1.0.
The Multiplier Effect
While the specific formula to determine the EMR is more complex than just a simple comparison, the formula for determining how the EMR impacts the business is straightforward.
The insurance company uses the company’s EMR in a formula with the payroll per $100 and each job’s classification rate, which is standard throughout the insurance industry. When the EMR is below 1.0, there is a drop in the total amount of workers’ comp the business has to pay. The lower it is, the lower the amount. The opposite is true if the number is over 1.0, so businesses with more serious or more significant accidents and injuries pay over the base rate for workers’ comp.
Factors to Consider
In addition to industry claims, years in business, and the actual claims history of the business, there are other factors that also have an impact on EMR. These include total premium, small claims (under deductible claims), claim frequency, number of employees, length of time to close claims filed, and the severity of the claims are also considered.
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