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How Experience Modification Rate Impacts Workers’ Comp Premiums

Employers spent $100.2 billion on worker’s compensation insurance in 2019. This is a staggering number on its own.

But the fact that a single number can significantly increase or decrease that number is just as jaw-dropping.

What is an experience modification rate — also called an experience mod — and how does it affect your insurance premiums?

What Is An Experience Modification Rate?

An experience modification rate (EMR) is a number that determines the risk of supplying a business with worker’s comp insurance. It represents the likelihood and frequency of workplace injuries compared to your competition.

Mathematically, it’s a modifier to the base insurance rate.

If your business’s EMR is exactly 1, your workplace injury risk is average.

If it’s higher than 1, your business probably had a high number of worker injuries during the last 3-year evaluation period.

If your EMR is lower than 1, it’s the opposite. Your business likely had a lower than average number of work injuries during the evaluation cycle.

EMR is calculated every three years. It usually updates around the time your worker’s comp insurance renews. You can implement measures to change it between cycles. We’ll go over this later.

That’s the basic math. So what do these numbers mean for your insurance premiums?

How Does My EMR Affect My Premium?

As we mentioned in the last section, your EMR can range from 1.5 – .75. It’s a modifier for the base (average) insurance premium rate in your area. So:

Base Rate x EMR = Your Premium

The higher above 1 your EMR is, the more you pay in insurance premiums. Conversely, the lower your EMR, the heavier discounts you’ll see.

It’s very similar to “safe driving bonuses” you see advertised by car insurance providers. A company lowers its injury rate, which gets it a low EMR, and therefore lower-cost premiums.

An EMR can either cost you big or save you tons of money. But what goes into calculating an EMR?

Frequency Vs. Severity

The frequency and severity of workplace injuries are both considered for an EMR. You might think that less frequent, more severe injuries would hike up the premiums, but you’d be wrong. Having frequent, less-severe incidents carries greater weight when determining a business’s EMR. Why?

The insurer’s logic is simple. A business can prevent multiple smaller injuries with improved safety plans and precautions. There are always going to be freak accidents, but the important thing is to avoid the safety issues that can be avoided.

The exact weight of incident frequency to severity used to calculate an EMR might vary by state. We recommend talking to your local agent or insurer to get all the facts on what goes into your EMR.

How Do I Find My EMR?

The fastest way to find your current EMR is to talk to your workers’ comp insurance agent. Many states have websites where you can look up this information, but your local agent will know more.

For companies in New Jersey, you can look up your business on NJ CRIB (Compensation Rating and Inspection Bureau) to find your EMR.

How to Change Your EMR

So you know your EMR, and maybe you want to lower it. There are several ways you can accomplish this. All of them keep your employees safer and save you money in the end.

Build a Workplace Safety Program

This sounds daunting, but it’s the best and simplest all-around solution. If you already have a workplace safety program in place, thoroughly review it with your employees.

Use their feedback to identify areas where updates might be needed. If workers aren’t following your safety guidance, take time to find out why and address those issues.

Remember, the simplest way to lower your EMR is to reduce the number of workplace injuries.

Safety Training

Sometimes it’s not enough to write out a dry workplace safety policy and call it a day. After all, long policy documents aren’t exactly reader-friendly.

Live or recorded training might help your employees to internalize appropriate safety practices.

Some people learn better by seeing something demonstrated or doing it themselves in a workshop setting. Providing safety training helps everyone get on board with a safety program.

Create a Robust Return to Work Program

Don’t just throw your hands up in defeat when an employee is injured.

A good return to work program is a handbook for getting an injured employee back up and running. These can be complex, depending on the workers’ comp case.

You will need to balance physician recommendations and the day-to-day status of your employee’s recovery, at least. You can use this information to create adjustments to your employee’s tasks and schedules and get them back to full speed at work as fast as possible.

Creating a strong return to work program can therefore help you minimize losses from an employee’s time off to heal.

Talk to Your Insurance Agent

Already done all the above and still need to lower your EMR? Consult your workers’ comp insurance agent a few months before your policy renewal.

Your agent can look at your options, state regulations, and business needs to provide recommendations.

Good Safety Practices Lower Your EMR

This is the core of the problem. Your experience modification rate will respond most to lowering the number of work injuries.

A lower rate of workplace injuries gets your business a lower EMR, which lowers the cost of your insurance premiums. It’s a win-win all around as your employees feel safe, and you save money!

If you’re a business in New Jersey looking for more resources, consider checking us out at Soden Insurance. We offer workers comp insurance and many other insurance services for businesses and individuals.

Request a quote from us today!