How Is the Experience Modification Rate Calculated?

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When you're running a business, you want to know what goes into determining your insurance rates. The cost of worker's compensation coverage, for example, depends on several factors, such as your business type, previous claims history and experience modification rate. Also referred to as the EMR rate, it has a significant impact on your premiums. The higher its value, the more you will pay for worker's compensation coverage.

What Is the Experience Modification Rate?

If you've been in business for years, you're probably familiar with the EMR rate. However, if you're just getting started, you may not know what it means and how it affects your insurance premiums. This factor alone can significantly increase or lower your expenses.

Insurance companies use the experience modification rate among other factors to determine how much you will pay for workers' compensation coverage. The EMR rate reflects your organization's injury claims and illness incidents over the past three years.

Construction businesses, for instance, carry a higher risk of work-related accidents compared to a consulting agency. Therefore, its EMR rate and workers' compensation premiums will be higher.

How to Determine Your EMR Rate

In each state, insurers apply the same rate to all employees falling into a given class. High-risk classes, such as roofers, welders, painters and wreckers have the highest rates. Insurance companies adjust these rates based on your company's past injury claims and future chances of risk.

An experience modification rate of 1.0 is the benchmark average. If your EMR rate is higher than the average, you will pay more for worker's compensation coverage. A lower EMR rate equates to lower insurance premiums.

Insurance companies use complex formulas to determine your EMR rate. Their calculations depend on each state's workers' compensation laws and regulations, which are published in the EMR worksheet once a year. This document provides information about each class code, data block and other relevant factors. The National Council on Compensation Insurance (NCCI) is the governing body that regulates the EMR rate.

Besides checking your state's workers' compensation laws, you may use an online EMR calculator to determine this rate. Simply enter your actual primary losses, actual incurred losses, expected losses and expected primary losses in the designated fields. Click Submit or Calculate to get the results. Since each state has its own rules, your rates will vary depending on where you live.

Another option is to use the RSMeans book for an EMR lookup. This guide features U.S. worker's compensation insurance rates divided by state and class codes. You can purchase it online on the official RSMeans website.

EMR Versus MOD: What's the Difference?

Contrary to popular belief, the EMR and MOD rates are not the same. The term MOD stands for Workers' Compensation Experience Modification. It's a factor that compares a company's claim profile to that of other similar businesses in your industry.

If your insurance premiums are too high, take steps to lower your EMR and MOD rates. Make your workplace more secure and check your MOD worksheet each year to detect inaccurate or outdated data. This document can be obtained through your insurance agent or from the rating bureau.