Benefits of an Experience Modification Rate Review – How it can help an Employer

Our company performs many Experience Modification Rate Reviews during the course of a single year. They’re also known as EMR’s, XMOD’s or EMOD’s. Expectations, wants and needs are different for every client. But one thing we’re often asked, at the initial contact by a client, is how a EMR rate review may benefit their company. So today we’ll talk about a recent case. Of course we’ll protect the identity of our client! But let’s learn about how our review began and where it ended up!

As usually happens, we were contacted by our client, an employer, who had recently received their upcoming EMR from the rating bureau only to discover that their EMR had suffered a significant increase from the prior policy year. Their rate was now 1.21 so they contacted our company and asked us to conduct an EMR review to verify the accuracy of the increase and to gain a better understanding of why the increase occurred and what could be done to reduce their now high EMR.

Our typical review begins by gathering client specific documents. Among these are policy declaration pages, audit statements, worksheets, specific claim information and/or loss history for both current and historic data. While the employer tends to always focus on the higher Experience Modification Rate we offer up a different perspective beginning with the verification of rating elements used in the calculation. Experience Rating Formulas are complicated and made up of many individual rating factors. Each factor must be analyzed and it’s through the review process that the role these factors play and the impact they make on the EMR becomes evident.

For this particular client’s situation it was discovered that incorrect classification codes had been used on their policy for several years. The correct codes carried a higher ELR or Expected Loss Rate and when applied to the calculations developed a significantly reduced EMR.

The trade-off for this employer was that the proper codes for their operation carried higher premium rates which in turn increased the premium for their workers compensation coverage. However, in this case, most of the increased premium was mitigated by the reduced EMR. The ultimate cost for their coverage turned out to be only slightly higher.

What was the real issue? This client’s business relied heavily on securing and maintaining government contracts. Contracts that required an EMR of 1.0 or below. So their real need was to have their EMR reduced. While we were originally hired to conduct an EMR review it turns out that it was the code analysis portion of the review that revealed the real problem!

The Take Away: You never know what might be discovered when you head down one path…only to be lead in a different direction to achieve the original goal!

Hope this helps you out! Thanks for reading!