Life Cycle of an Experience Modification Rate or EMR – It’s A Wake Up Call!

Think of this post as a wake up call for employers with an experience rated workers compensation policy! Don’t wait until your EMR blows through the roof to get a handle on it. Unfortunately that’s when most employers start to take notice that something’s wrong! Let’s talk about the life cycle of an EMR or EMOD.

Experience rated employers know that their EMR fluctuates every year. They usually don’t know why but as long as it is some kind of credit mod, one below a 1.0, they seem to go along quite happy. But when a major shift occurs and their EMR increases by over 20% and their workers compensation premium goes up over 20% they start paying attention. Experience modification rates are dynamic. They move around. It’s their nature as a reflection of multiple independent factors playing out their roles and yes, there is a life cycle to workers compensation experience rating.

It begins when an employer qualifies to be experienced rated. Not all employers are. You’ll find there’s a premium threashold that must be exceeded before experience rating is applied to any particular employers premium calculation. Those with small annual premiums, typically less than $3,500 (it’s established by each individual state,) may never be experience rated. But once they qualify, an unknown, behind the scenes world of comparison and calculations are then applied to their policy experience, ultimately making adjustments to the premium an employer pays.

Multiple rating factors influence the development of an EMR. Rating payroll, classification assignment, experience period, expected loss calculations and last but in no way least CLAIMS!

Factoid: Did you know that a workers compensation claim that occurs today may not show up on an employers experience modification rate or EMR until 2015? And did I mention that once it shows up it’ll be around for three years?  

It’s called the experience period effect. It’s delay in time that creates problems for many policyholders. Policyholders tend to forget that a claim even happened and when it finally shows up, a few years later, and creates havoc on their EMR it’s a big surprise! A big surprise that keeps on giving for three years!

So here’s the take away: Today’s EMR or experience modification rate is dynamic, always moving around in the background and is a direct reflection of events that occurred in the past.

Don’t let todays events become tomorrows EMR problems! Stay on top of your EMR calculations and learn how today’s individual rating factors influence your future premium. And if you need help with an EMR problem contact our office! 

Hope you find this post helpful! Thanks!

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