Five Steps to Improve Your Workers Compensation Experience Modification Factor or EMR

Experience rating is an essential part of tailoring a workers compensation policy premium to an individual employers operation. Published rates, that are created and used by an insurance company, are developed for large segments of industry classes. In other words, the unmodified rate per 100 of payroll for any given workers comp class code is based on the total experience generated by all employers found within that code. Think of experience rating or the EMR as a fine tuning tool used on each qualifying employer. Experience rating takes into consideration that individual employers experience and modifies their individual policy premium by applying the EMR factor. It’s a complicated process with a long reaching tail that, for some employers, can deliver a devastating blow to the cost of their workers comp insurance.

Here’s five steps that you can use to improve your EMR.

  1. Learn everything you can about how experience rating on your policy is calculated. – Experience rating is complicated. Many folks out there (insurance people) will use over simplified examples of how a single claim can impact the calculation and ultimately increase or lower the premium an employer pays. This does not paint a true picture. When it comes to the EMR it’s the details that count. More education on this topic will better serve anyone who has anything to do with explaining or applying experience rating to an employers policy. Visit this page on our website to learn more details about the EMR.
  2. Make sure the correct classification codes are used on your policy by having a class code review performed. – Class codes are key to so many things having to do with premium generation. And when it comes to experience rating, it’s the class code that determines the rating factors used in the EMR calculation. These rating factors include the ELR or expected loss rate and the D-Ratio or discount rate among others. Talk with a work comp consultant if you believe you have a wrong class code on your policy. Have a class code review performed on your business. A wrong class code used on a policy will translate into a wrong EMR.
  3. Make sure your audited payroll is correct. – Ever wonder why it seems so important for an insurance company to get your audit completed as soon as possible after your policy expires? Sure, it’s probably the additional premium they need to collect from you but that’s not all! For experience rated employers the insurance company has to report the employers audited payroll and claim data to the rating bureau within a very specific period of time after the policy expires. It’s the final audited payroll that is used in the EMR calculation. That’s why it’s so important to make sure your audit is correct. An employer who has questions about their audit should consider conducting an audit review.
  4. Pay close attention to your loss history. – Losses or claims play a very important part in the calculation of your EMR. An employer who is serious about improving their experience rating will focus a great deal of their efforts on reducing or eliminating workers compensation claims by establishing strong safety programs. But that’s not all. Monitoring active and closed claims through regular reviews of your loss history will help you establish bench marks for risk factor improvement. Claim reviews, performed by independent work comp claim specialists, are necessary to identify overpayment or mishandling of claims by the insurance company. All of which lead to increased experience rating factors.
  5. Have a comprehensive EMR (experience modification rate) review conducted on your business. – I mentioned above that it’s the details that drive an employers EMR. These calculations are not simple and in fact they rely upon so many individual pieces of factual data ranging from class codes and rating factors to rating payroll and claims that any employer who is serious about improving their experience rating should have a EMR review conducted every few years. These reviews typically include details of each factual piece of data used in the calculation. While some employers will focus on having a claim review conducted they should never discount the importance of using correct rating payrolls and class codes. All these parts work together. All need to be verified.

So there you have it. Five simple steps that any experience rated employer can take to improve their experience rating factor or EMR. Oh, did I mention that improvement doesn’t happen overnight? That’s because a deteriorrating EMR likewise doesn’t happen over night. It’s never too late to get on the band wagon and work towards improving one of these rating factors. But take this as a word to the wise. It’s much better to get a handle on what’s going on with your EMR BEFORE you start experiencing a problem. An out of control EMR is not the place to begin seeking control.

An out of control EMR CAN put an employer out of business! So get started earlier than later!

Hope this helps you out and thanks for reading!