The Summary:

Although not an actual OSHA metric, your Experience Modification Rate (aka “EMR” or “Mod Rate”) determines how much your company pays for Workmans Compensation insurance.  This is a significant factor in how safety performance can impact your bottom line.  Read on to understand why….

Here are the key points to understand:

  • Your EMR compares your WC claim history with competitors in the same industry.
  • It rewards companies with low losses and good safety & claim performance, and penalizes those without.
  • High EMR scores can result in premiums up to 3x higher than base premium.
  • Monitoring and managing your EMR is key to saving money for your company.

Building a strong health and safety program and culture of safety at your company, and effectively managing claims, is the most effective way to drive down your EMR and keep it down.

(Do not confuse EMR with TRIR and DART, which are actual OSHA safety performance metrics.  We will discuss these two key heath & safety metrics in our next OSHA power brief)

The Details:

Why EMR exists and how you can use it to drive down your insurance costs:

EMR was created as a means to determine a fair and accurate WC premium for individual businesses. As you’ll see in the next section, it takes into account your company’s actual annual payroll amount and losses, as well as potential for losses (based on your industry type), to determine your final premium.  By taking all of these factors into consideration, it assigns an appropriate WC premium to the business.  Most employers who have an annual WC premium of greater than $3000 will be given an EMR score each year.

Since EMR determines how much businesses pay for WC insurance, it also gives business owners some influence over how much they end up paying. In other words, since a key component of EMR calculation is actual losses in any given year, it gives employers the opportunity and incentive to minimize those losses by implementing and managing effective health and safety programs, and claims management within their organizations. See why in the next section…

In addition, companies and customers often request and scrutinize this vital safety performance indicator during the evaluation and qualification process in order to determine which vendors they want to do business with. This is another reason why managing your EMR is so critical and how it can help grow your business.


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How your EMR is calculated:

Again, monitoring, managing and deriving down your EMR score is key to reducing your WC insurance costs.  It is an accurate measure of how effective your health & safety loss prevention and control practices are working, and will reward your company for reducing workplace accidents and illnesses, and effectively managing claims when they do occur.

Your EMR is calculated by the National Council on Compensation Insurance (NCCI), or by independent agencies in some states.

NCCI penalizes for number (frequency) of injuries as well as the cost (severity) of each of these events.  It weighs frequency more heavily than severity since frequency is an indicator of instability and poor safety management practices at a company.

Typically your WC carrier will report to NCCI, or state agency, your class code, total payroll and total losses for the past five years.  The agency uses three full years of data, ending one year prior to the effective date of the rating period.  In other words, your 2013 EMR score will be calculated using data from 2009, 2010 and 2011 (and not 2012).

The types of claims your company has and how you manage and control the cost of these claims has a significant impact on your EMR score.

Claims that require medical treatment only are typically less costly and so employers should not be heavily penalized when they happen. As a result, these claims are reduced by 70% before they are entered into the formula.  Therefore it is vital that companies implement effective claims management and return to work programs to get injured workers back to work as soon as possible so as to reduce any additional claims related costs (costs other than medical care).

On the other hand, ”lost time” claims are penalized more severely due to the additional expense.  The first $5,000 of these claims are counted at full value, while additional dollar losses are discounted up to a cap so that catastrophic claims can’t unduly damage a business.

And again, since frequency is more heavily weighted than severity, a single $50,000 claim, for example, is less penalizing than 5, $10,000 claims.

At the end of the day, an EMR score of “1” means that your company is paying what underwriters believe your company should be paying based upon your industry and activities.  Any score which is higher or lower is a reflection of the factors described above.

Therefore, if your EMR is .9, then you’re being given a 10% discount on your premium.  If it’s .8 then you’re being given a 20% discount, and so on. On the other hand, if your score is 1.2, then you are paying 20% more than you should be paying, 1.5 results in a 50% penalty, and so on.  EMR scores can approach 3, meaning that premiums can be up to 3x higher than what is expected for companies with very poor health and safety, and claims management programs.

You can easily determine your EMR score by asking your insurance agent or broker or by looking at your current year WC policy.  You can also request a copy of the calculation used to determine your EMR.

The Key To Managing & Lowering Your EMR Is Managing OSHA Compliance, But That’s Easier Said Than Done,

Especially For Small Companies Who Often Lack The Expertise and Resources To Make It Happen.

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