After labor and materials, insurance is the third highest cost for a construction company. That’s why it’s important to understand — and monitor — your experience modification rating (EMR). EMR has a direct correlation to how much you pay in Workers’ Compensation Premiums. The lower your EMR, the less you pay in premiums.
But to be able to use your EMR to effectively control costs, you must first understand how it works.
What is an EMR?
In a nutshell, your EMR compares your workers’ compensation claims experience to other employers of similar size operating in the same type of business.
It’s the method for tailoring the cost of insurance to the characteristics of a specific business, but it also gives that business the opportunity to manage its own costs through measurable cost-saving programs.
How is EMR Calculated?
The actual process of calculating the EMR is sometimes complex, but the purpose of the formula is pretty straightforward. Here’s how it works: your company’s actual losses are compared to its expected losses by industry type. Factors taken into consideration are company size, unexpected large losses, and the difference between loss frequency and loss severity.
EMR usually takes into account three years of claims history, excluding the most recent policy year. For example, the EMR for a policy period beginning January 1, 2018, includes claim costs for the policy periods beginning:
- January 1, 2014
- January 1, 2015
- January 1, 2016
Who Gets Assigned an EMR?
Not every business is large enough to have an EMR. Your workers’ compensation premium has to be above a certain dollar threshold specified by your state before your organization will be assigned an EMR. This minimum premium amount is usually around $3,000-$7,000.
What are EMR Classifications?
A workers’ compensation classification represents a group of employers that conduct similar types of businesses. Classifications are usually represented by four-digit codes. Examples of classifications are Roofing (5150) and Plumbing (5183). All employers assigned to the same classification pay an identical rate (if they are located in the same state).
Classification systems are based on the idea that workers employed by similar businesses are prone to similar types of injuries. For example, employees who install roofs are subject to injuries caused by falls, burns, sun exposure, and lifting heavy objects. The types of injuries these workers sustain are relatively consistent from one roofer to another. Thus, all employers whose business consists of roofing installation are assigned to the same workers’ compensation classification.
Who Calculates Your EMR?
Your EMR is calculated by the National Council on Compensation Insurance (NCCI) or, in some states, by an independent agency.
When the NCCI or a state bureau issues an experience modifier, the agency provides an experience rating worksheet. The worksheet shows how your modifier was calculated. It lists the relevant class codes and applicable payrolls, claim numbers, and losses used in the calculations. Note that if you have incurred a large loss, only a portion of that loss is typically included in the calculation of your modifier. If you have incurred several small losses, all of those losses might be included in the calculation.
Pro Tip: Your modifier is generally more adversely affected if you have incurred numerous small losses rather than one large one.
How Does My EMR Affect My Premiums?
Your EMR represents either a credit or debit that’s applied to your workers’ compensation premium. An EMR of 1.0 is considered to be the industry average. While an EMR of more than 1.0 is a Debit Mod, which means your losses are worse than expected, and a surcharge will be added to your premium. An EMR under 1.0 is a Credit Mod, which means losses are better than expected, resulting in a premium discount.
Here’s an example of how this works:
As you can see, an EMR of 1.25 would mean that insurance premiums could be as high as 25% more than a company with an EMR of 1.0.
How Can You Achieve & Maintain a Low EMR?
Of course, this is the question every business owner wants to know the answer to. So here is a list of things you can do to be more proactive when it comes to lowering your EMR:
- Contact your insurance agent or review your policy documents to verify your current EMR is accurate. You might be paying more (or less) than you should due to incorrect or incomplete data.
- Remember that EMR is influenced more by small, frequent losses than by large, infrequent ones. So, the fewer losses you have, the better.
- Create a strong, well-documented safety program that incorporates best practices such as toolbox talks, daily safety analysis, frequent site inspections, and safety training.
- Use analytics to determine ways you can be proactive about injury prevention.
- Also, create or improve an effective return to work program to help lower your EMR.
- Make sure that all injuries are reported promptly. Studies reveal that prompt injury reporting reduces the cost of claims.
- Implement an active claims management program to manage outstanding reserves and focus on efficiently resolving open claims.
- Train front-line supervisors and managers on how to manage injured employees. Supervisors play a key role in managing the injury and recovery process. When there’s a good relationship between the injured employee and the supervisor, chances are you’ll get better results.
- Practice due diligence during the hiring process. Hiring an employee who is not fit for the essential functions of the job will increase the risk of an injury. Of course, you’ll want to take the appropriate and legal steps in your “screening” process.
SafetyHQ Can Help Your Company Lower Your EMR & Save Money
If you want a stronger health and safety program with better documentation and more efficient workflows, SafetyHQ is your answer.
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