What is an Experience Modification Rate (EMR) and why does it matter?
If you’ve ever looked into how your workers’ comp insurance rate is calculated, you may have come across the term Experience Modification Rate (or its shortened form, EMR). So what exactly is an EMR rating? How does it affect the rate you’ll pay for workers’ comp insurance? And how can you lower your EMR to save money on workers’ comp?
We'll walk you through everything you need to know about your EMR.
- What is an Experience Modification Rate (EMR)?
- What are the benefits of an Experience Modification Rate (EMR)?
- What factors go into your Experience Modification Rate?
- How are Experience Modification Rates calculated?
- How can you lower your Experience Modification Rate to save money?
1. What is an Experience Modification Rate (EMR)?
An EMR (sometimes called a workers’ comp experience mod or an EMR safety rating) is a numerical rating that represents how safe your small business is compared with other businesses in your industry.
The standard Experience Modification Rating is 1, which just means that if your business is about as safe as the average business, you’ll get an EMR of 1. If you’ve had a few more safety incidents than most businesses in your industry, you’ll get a number that’s higher than 1—say, 1.2. (And if your small business has a spotless safety record, you’ll get an EMR that’s less than 1.)
2. What are the benefits of an Experience Modification Rate (EMR)?
There are two big benefits to an Experience Modification Rate (EMR). The first is that it allows your insurer to customize your insurance rate more closely to your business and your safety history. (After all, if your small business has a stellar safety record, why should you pay as much for workers’ comp as a business with an extensive history of employee accidents?)
The other benefit? It gives you some additional incentive to keep your safety standards high. Safer companies get lower EMRs. Lower EMRs get better workers’ comp rates. It’s pretty simple.
3. What factors go into your Experience Modification Rate?
a. The frequency and severity of safety incidents at your small business
First, your insurer will look at how many safety incidents you’ve had at your small business (your accident frequency)—as well as how expensive those accidents were (accident severity).
Here’s the thing, though: frequency and severity aren’t equally important, because it’s very hard to predict the cost of safety incidents in advance. There are just too many variables to consider—the age of the employee, the seriousness of the injury, the cost of the medical provider, etc.
Because it’s hard to predict the cost of claims in advance, your insurer will rely far more on accident frequency when they’re computing your EMR. (Which makes sense, yes? Statistically, insurers expect employers with a lot of safety incidents on their record to cost more in the long run.)
Long story short: An employer with one huge claim on its record might very well pay less for their workers’ comp coverage than a similar employer with 10 small safety claims.
b. The cost of your incidents beyond the “split point”
To figure out how severe your safety accidents have been, your insurer will use a split rating approach. With this rating system, your insurer calculates how expensive your accidents are beyond a set dollar amount per incident. That set dollar amount is called a split point, and it’s determined on a state-by-state basis (the split point is $17,500 in most states).
Any cost up to the split point is called your primary loss, while any costs beyond the split point is called your excess loss. Your insurer will pay the most attention to your primary losses—but they’ll still factor in your excess losses (because those give them information about how costly they can expect your safety incidents to be). It's also important to note that each state has its own per claim accident limitation. This is intended to protect the employer from the adverse impact any single large claim could have on the experience rating modification calculation.
For example, let’s say your state’s split point is $17,500, and your most recent safety incident cost your insurer $50,000. Your insurer will consider $17,500 to be your primary loss—and it will get the most weight in the formula—while $32,500 will be factored in as your excess loss.
Here are some additional Split Rating examples:
|Loss Amount||State per Claim Accident Limitation||Primary Loss (Frequency)||Excess Loss (Severity)|
4. How are Experience Modification Rates calculated?
Let’s look at how the Experience Modification Rate is calculated—and how it fits in with your workers’ comp rate calculation.
First, to calculate your EMR, your insurer will look at the last three years of your safety record and then compare that data against similar data from other businesses in your industry. Then, if your safety record is about average for your industry, you’ll get a workers’ comp mod rate of 1.
What happens then? Well, then your EMR is inserted as a multiplier into the overall workers’ comp rate calculation.
Let’s look at a quick example.
First, let’s say that your insurer has already started the workers’ comp rating process by calculating your Manual Premium (which is based on your payroll and industry). In your case, we’ll say that your Manual Premium is $100,000 per year.
Now, it’s time for the EMR. We’ll assume your business is safer than the average business in your industry and give you an example EMR of 0.75.
Your calculation would look like this:
$100,000 Manual Rate x 0.75 EMR = Modified Premium $75,000
Looks like your safety record just got you a discount. Well done.
Here are some additional Experience Rating examples:
|Manual Premium||EMR||Modified Premium|
(It’s important to know, though, that your workers’ comp rate isn’t finalized yet. There are still a few steps in the workers’ comp calculation, and you can read about them here.)
5. How can you lower your Experience Modification Rate to save money?
So much for all the technical details of an Experience Modification Rate—let’s get down to practicalities. Is there a way that you—as a small business owner—can keep your EMR as low as possible so you get a better rate on workers’ comp?
Absolutely. The number one thing you can do to keep your small business’ EMR low is to have a stellar safety program. If you don’t have any injuries at your workplace, you won’t have any claims. And if you don’t have claims, your Experience Modification Rate will be as low as it possibly can be.
But does a safety program actually make a difference in how many accidents happen at your small business? Again, the answer is absolutely. In fact, the Occupational Safety and Health Administration states that employers who establish safety programs can reduce costs related to workplace illness and injury by up to 35%. That’s a pretty significant reduction—and it can result in significant savings on your workers’ comp. (Not to mention it’s the right thing to do to help your employees stay safe.)
If you haven’t started a safety program yet—or have been thinking about expanding an existing program—now is the time. Getting a safety system in place might sound intimidating, but it really starts with a few simple, common sense steps:
a. Make sure your employees know how to do their tasks safely
You can’t assume that your employees automatically know how to do their job safely—it’s your responsibility to tell them. And a simple safety training program is better than no training program at all. Start by writing down instructions for all major workplace tasks and then ensuring every affected employee reviews your instructions and has the opportunity to ask questions. (You can also offer OSHA safety classes at your workplace.)
b. Provide your employees with safe tools and equipment
Keep an eye on your equipment for any sign of malfunction. And remember that not every workers’ comp claim is caused by risky behavior—providing ergonomic office equipment can go a long way toward reducing carpal tunnel workers’ comp claims.
c. Hire safety-minded employees
Assemble a team of thoughtful people who will look out for themselves and each other. (This one takes time, but it’s worth it.)
d. Reward safe behavior
Make sure that every employee who follows safety rules knows that you’re pleased with them. Gift cards and bonuses might add a bit more to your budget now, but they’re a good investment: An excellent culture of safety at your small business will almost certainly lower your Experience Modification Rate—and save you lots of money (and stress!) in the long run.
Okay, that’s what you need to know about your mod rate—and how to keep it low so you can save on workers’ comp. We hope this was helpful. Remember, you can get an estimated workers’ comp rate for your small business here—it only takes 60 seconds and it’s super easy.