Understanding The Experience Modifi Cation Rate (EMR) : Review of Tools To Reduce Workers' Compensation Costs
Understanding The Experience Modifi Cation Rate (EMR) : Review of Tools To Reduce Workers' Compensation Costs
Understanding The Experience Modifi Cation Rate (EMR) : Review of Tools To Reduce Workers' Compensation Costs
ABSTRACT
The practice of consulting a company’s safety record to help evaluate its general competence dates back to the 1980s, when
safety laws became more rigid and corporations became more committed to enforcing regulations. Lately, however, there
has been a growing trend to judge a company’s commitment to safety and its overall management expertise by an indicator
originally developed in the insurance industry to calculate policy premiums. Essentially the EMR has become the Credit
Rating for Industry.
Insurance companies refer to this new competence indicator as the ex- This is not only a tool for Insurance and Claims
perience modification rate (EMR) or modification rate or just plain MOD. Management, it is also used by companies who are
proactively seeking sub contractors who practice a safe
In general insurance terminology, experience refers to a record of pre- working environment. A prime example is DuPont’s
miums and losses under a policy. This provides a basis to predict future policy: They will not work with any company that hasn’t “demonstrated its
rates or costs. ability to work safely,” as reflected by an EMR of 0.99 or below. Anything
above 0.99, and you’re not able to secure a contract with Dupont.
For workers’ compensation, experience is further defined as:
• The comparison of premium (usually payroll) and losses developed Companies who effectively manage their Safety Programs not only un-
by a risk in a policy period. derstand how this works, but they also have assigned someone to moni-
• The loss record of an insured. tor this on a regular basis. It has a direct correlation to how much you pay
• The history established by a risk as disclosed by the losses and the in Workers’ Compensation Premiums.
payroll appearing on the unit card. The premium paid is compared to
losses paid out on an insurance policy. How does this affect the Employer’s premium?
• The aggregate premium/losses within a state during a period of time Companies that practice effective safety and claims management tech-
reflected in a financial call. niques are rewarded with the EMR. The example below illustrates the
difference between companies with a .80 Experience Mod versus a 1.20
Workers’ compensation costs fall into three categories: Experience Mod. As you can see from the example, controlling your Ex-
Understanding your experience modification rating (Experience Mod) perience Mod can have a big impact on your insurance premium.
and monitoring it regularly is key in reducing your Workers’ Compensa-
tion costs. It is also an excellent measure of how your loss prevention
and control practices stack up to others in your industry. Class Code Payroll Rate Per Premium
$100
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Original Paper
A brief overview of the type of claims and individual results are as follows: trols and lack of management oversight, the mod equation is created to
elevate the mod faster for frequency rather than severity. The mod equa-
Medical only claims - Claims that require medical treatment only are tion also breaks up all claims into primary losses and excess losses. The
usually less severe so employers are not penalized when they occur. frequency is going to be significant in the primary losses (those claims
Consequently, any medical only claims are reduced by 70% before they under $5,000).
enter the formula. You can take advantage of this by ensuring that injured
employees remain at work when possible or return to work within the Severity – When we discuss severity, regarding the mod, the NCCI cat-
waiting period. This is where an effective claims management and return egorizes this as claims in excess of $5,000. Each state also puts a cap
to work program can have a dramatic effect. on large claims (usually around $200,000) so that one significantly large
claim cannot outweigh all the others. It’s the excess losses that represent
Lost time claims - The first $5,000 of a lost time claim is counted at full severity in the mod calculation.
value. The dollar amounts after $5,000 is discounted. There is also a
large claim cap limit to protect you from a catastrophic loss. Because the Payroll – Payroll (per $100), by classification code, is multiplied by cor-
first $5,000 of each loss goes into the formula dollar-for-dollar, severity is responding rates from carriers to determine manual premium, but this
a factor. A single claim valued at $20,000 has less effect on your Experi- same payroll, by code, is also used by the NCCI to determine expected
ence Mod then 10 claims valued at $2,000. losses. It’s this payroll and the NCCI’s historical data that determine an
appropriate value for which to compare companies. Obviously, smaller
“Companies seeking to minimize their workers’ compensation pre- companies with less employees and lower amounts of payroll are ex-
miums need to focus their safety efforts on reducing the frequency pected to have fewer claims and less total dollars incurred to those
of lost time claims.” claims. As the size of the company and payroll increase, the expectation
for claims and dollars incurred also goes up. Bigger companies do have
the potential for a bigger credit.
It is also recommended that companies review their losses periodically.
Pay particular attention to open claims with outstanding reserves. Work How can the Employer make a difference?
with your claims administrator to bring these claims to closure. In some There are some key components where significant impact can me made
instances, outstanding claims may be closed resulting in reserve reduc- by the Employer and independent service contractors. First of all you
tions that ultimately may affect your Experience Mod. Don’t forget about need to pay particular attention to the amount paid on every claim and
your current year’s claims. These usually present the greatest oppor- fight for the best outcome and pay attention to indemnity payments and
tunity for cost reductions. Remember this year’s claims will affect your make sure that if lost time isn’t needed, bring the employee back to work
Experience Mod next year. and avoid the indemnity payments. Implement a detailed Return to Work
program and monitor it for effectiveness. Pay attention to closed claims.
Where do I find my Experience Mod? Make sure the mod worksheet reflects the accurate amount of closed
Typically you will receive an Experience Modification Rating Sheet each claims to ensure no mistakes have been made. Vice versa, also pay at-
year prior to your policy renewal date. If you are unclear of your compa- tention to reserves on open claims. Because reserves count against you
ny’s current Experience Mod your insurance agent can help you locate as an “actual” loss, make sure that the carrier isn’t over reserving. Even if
this. Your Experience Mod is also listed on the declarations pages of your a claim closes at a lower dollar amount, the initial reserves may push that
workers’ compensation policy. mod up. Insurance companies report all the historical claims information
to the NCCI around 6-8 months into a current policy. What this means
How do I learn more about the Experience Mod Formula? is that any changes to reserves or claim closings in the last 4-6 months
The National Council on Compensation Insurance (NCCI) has published of the policy won’t be reflected in the new mod. So, review this histori-
a booklet entitled “ABCs of Experience Rating”. It is available on their cal information and push for necessary reserve changes BEFORE the
website at www.ncci.com. This brochure explains the experience rat- insurance company sends the info to the NCCI. When errors are found
ing plan in greater detail. Many states that use independent agencies to resulting in a lower mod, the NCCI can be petitioned to make a change.
“20% of workers’ comp claims account for 80% of what insurance Choosing the right partners is invaluable in the Return to Work pro-
companies pay out – it is extremely important to monitor and man- cess. Ensure in your selection of your medical and clinical team
age each and every injury appropriately. Managing an injury means that they have experience with workers’ comp claims and under-
getting the worker to a medical provider you’ve selected because stand the rational for expediting return to duties.
they know about work injuries. They’ll take your injured worker
right away, they’ll give a medical report to the company, and they The information noted above is a summary of one of the components of Fit2WRK
will inform you about the restrictions of the injury and what the by USPh. This integrated model is available through USPh in close to 400 facili-
worker can and can’t do so you can get them back to work doing ties and 44 states nationally. For additional information on how the Fit2WRK Mod-
modified or light duty.” el could help your organization, visit; www.Fit2WRK.com or call 1-877-Fit-2WRK.
RESOURCES:
Why is it important?
The EMR is important because it offers the ability to get a credit or debit (NCCI also publishes a handbook on the procedures for reviewing and calculating your EMR)
in the rating of the WC policy, and this credit/debit could significantly
change the final premium. Because of this influence over final premium,
it provides employers with an incentive to provide safety and loss pre-
vention programs as well as an incentive to have injured employees re-
turn to work as quickly as possible. https://www.ncci.com/NCCIMain/Education/ExperienceRating/Pages/default.aspx