EMR (Experience Modification Rate) formulas are not written in stone. They change. They are adjusted from time to time by individual state rating authorities to develop a better, more accurate, policy experience adjustment factor. These small adjustments in an EMR formula can cause workers compensation policy holders big changes in premiums they pay!
One of the basic ideas around the concept of an experience rating factor is that of leveling the playing field between employer policyholders. You see, workers compensation rates are developed and published as a rate per $100 of rating payroll or remuneration by classification code. So consider this, two separate employers in the exact same type of business doing the exact same work processes. Both employers have the exact same class codes on their policy and pay the same rate per $100 of payroll. The difference is that one employer has had many claims totaling up to many thousands of dollars spent for injured employees. The other employer has had no claims, no injured employees. Without experience rating, in it’s basic form, both employers would be paying the same premium for workers compensation insurance. That in a nutshell is why experience rating was developed, to discount premiums paid by employers with no or low claims and to increase premiums paid by employers with claims.
Recently we’ve seen EMR formula changes or modifications from both NCCI, the National Council on Compensation Insurance, and the WCIRB, Workers Compensation Insurance Rating Bureau of California. While technically not a formula change NCCI has recently adjusted the split point used in their rating formula. Raising the split point on a national basis from $5,000 to $15,000 over a short period of time. The split point is a dollar value at which primary losses are separated from excess losses in the rating formula. The California WCIRB has recently changed it’s formula effecting the use and application credibility factors. The expected net effect of both actions, policyholders or employers with poor claim experience will be paying more in premium!
Employers! Here’s your wake wake up call! It’s time to get ahead of the game. Rating bureaus are sending a message. Trends in EMR calculations are clear. Employers who continue to generate poor claim experience will pay more premium while those with few or no claims will pay less. The gap has widened between claim free employers and those with claims. While in the past an employer who may have had no previous workers comp claims but who unfortunately experienced a single shock type loss would not have seen much of a swing in their EMR. That’s changed. A single claim in an otherwise clear claim record can generate a severe up swing of the EMR.
What should an employer policyholder do?
- Develop a safety program and work it! An employers new goal should be eliminate all claims! If you have a safety program in place, dust if off and use it. If you don’t have one call or email my office.
- Claims will occur and when they do it doesn’t take long for one to get out of hand. An out of control claim can kill your EMR! Have an active workers compensation claims management plan in place and use it!
- Have workers compensation claims reviewed by an independent consultant. Don’t have one? Contact my office.
- Have your EMR reviewed by an independent consultant. If you don’t currently work with a work comp consultant contact my office.
Bottom line, get active with your workers compensation claims. Learn how a single claim can effect your business bottom line. Learn what you can do to help keep your EMR under control.
Hope this helps you out! Thanks!
