How Workers Compensation Claims Effect Premium

It should not be a surprise that workers comp claims have a direct effect on the premium an employer pays. It’s called experience rating. Through the application of an experience modification rating formula a factor known as the EMR or experience modification rate is developed and applied to an employers workers compensation policy.

There are two basic results of an experience modification calculation, a credit EMR or a debit EMR. The credit factor when applied to a policy reduces the premium while a debit factor increases the premium.

Three basic groups of data are used in the calculation; Workers Compensation Claims, which include already paid dollars and reserves or the expectation of future paid amounts; Payroll, the audited and reported payroll of an employer; and Classification Code, each code represents a specific set of loss expectations and factors that are used in the calculation.

To identify the extent of damage a workers comp claim will have on premium you must first know the Perfect EMR for the employer in question. The Perfect EMR or Perfect Mod is one that’s developed using the current payroll and code data without application of the employers claim data. In other words it’s the EMR that an employer would have earned with no claims during the experience period. Once this is known it can be compared to the EMR developed using the claim data. A simple comparison of the two numbers can tell the employer the effect any single claim will have on premium they pay. The Perfect EMR is a useful tool that agents and employers alike should use in managing their workers compensation program. If you need help determining your Perfect EMR just contact our office.

Of course the goal for all employers is to never have a workers compensation claim! No employer wants to see an employee injured whether on the job or not. But work accidents and injuries do happen and when they do it’s the workers compensation system that responds providing medical attention, replacement of lost wages, rehabilitation and return to work for the injured worker. A workers compensation claim can be as simple as an injury requiring medical treatment only with no lost time or as complicated as a life threatening injury with many future years of treatment and permanent disability.

From a claim perspective it’s the claim dollars paid and future reserves that make a great impact on the EMR calculation. So the details found in any single workers compensation claim have the potential to escalate a simple claim into a much larger and ultimately more costly one. 

Workers compensation claims management then becomes more and more important. Claim and reserve reviews are especially important. They can help identify potential claim problems and address them before they show up in the EMR calculation. It’s always better to be proactive than reactive when it comes to claim situations and their ultimate impact on a EMR!

Be sure to contact a workers compensation consultant for assistance with projecting future EMR’s, claim and reserve reviews. Two tools that can help you better manage your workers compensation program.

Hope this helps out!

Thanks!

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