The Dangers Of A High Workers Compensation Experience Modification Rate or EMR

For a business who has an experience rated workers compensation policy there’s almost nothing as dangerous, at least from an insurance perspective, as a high experience modification rate. It can be disastrous for a business!

A high EMR or experience modification rate, Mod, EMod or XMod, is most of the time a direct result of poor loss or claim experience. You see the purpose of an EMR is to compare an employer’s loss results or claims with those of the norm for the specific industry associated with the employer in question.

What is a high experience modification rate? It depends on the employer, industry and several other factors that must be taken into consideration. Any given employer may have tollerence for a mod up to say 1.10 or 1.15, some as low as 1.0. An insurance company may be accepting new business with a mod up to 1.20 or 1.30, but most are not so forgiving. So a high mod can mean different things to different people. It just depends on your perspective.

So lets look at some of the effects a high EMR will have on an employer.

By comparison take for example employer A, a heating and cooling contractor located in Tennessee, who has had no workers compensation claims within the past 5 years. Employer A has implemented a workable safety program and is now reaping the rewards as shown by the achievement of the lowest possible EMR for their business, their Perfect EMR. For purposes of example lets say employer A has a mod or EMR of .85. Now lets look at employer B, a heating and cooling contractor located in the neighboring town who has a similar size workforce but who has experienced several small claims and one large claim in the past 5 years. Lets say employer B has a mod of 1.40.  Here’s two similar workforces within the same industry one, employer A, who will have a 15% credit applied to his workers compensation premium and the other, employer B, who will have his premium multiplied by 1.40! That’s a 55% swing! If both employers started out with the same workers compensation premium of $30,000, after application of the EMR employer A would actually pay a premium of $25,500 and employer B would pay a premium of $42,000! A big difference that could impact on employer B’s ability to provide competitive service in his community. And this is just one example of the dangers of a high EMR or experience modification rate!

So a high EMR:

  • Will have a direct result in higher workers compensation premium;
  • Will effect an employer for the experience period of three years;
  • Is earned by claims paid and reserved during the three year experience period;
  • Cannot be corrected in one year, rather it takes a plan, effort and time to reduce a EMR;
  • May make an employer ineligible for coverage through his current workers compensation insurance company. If an experience mod factor continues to go up it’s common that an insurance company will non-renew coverage. Typically this will be for claims or loss history;
  • May force an employer to secure coverage through the “market of last resort,” a state Assigned Risk Plan or Pool. Which in turn will be extremely costly!
  • May result in the loss of valuable work contracts. Many hiring (general) contractors look at the EMR as a construction safety indicator. While it is not designed to be used as a safety indicator, the EMR is used by general contractors as a guide and you will find it is written into many contracts that a sub-contractor must maintain a 1.0 or below EMR to bid on or perform work under such contract. And when a sub no longer qualifies because of a high EMR they may lose current contracts and be unable to bid on future work.    

So if you are an experience rated employer now is the time to get a handle on your EMR! Don’t wait until it’s out of control to do something because at that point you may be too late! Ask for help if you need it. There’s several good workers compensation consultants out there that can assist your business in gaining control of your EMR!

Hope this helps!