The experience modification rate (EMR) is a number used by insurance companies to gauge both the past and future risks associated with insuring a particular business. Businesses with a history of more frequent and/or costly workers’ compensation claims will have a higher EMR which in turn will result in the company having to pay higher insurance premiums. Conversely a business with a lower EMR will usually see lower insurance premiums.
EMRs are calculated using a formula that weighs three years of a company’s actual loss experience against its expected loss experience. The expected loss experience is determined by the industry class code under which a business falls. The three years of experience used in the calculation are the most recent three complete policy years.
The EMR formula is as follows:
EMR = (Actual Losses + Premiums) / (Expected Losses + Premiums)
The EMR can range from 0.50 to over 10.00 with the majority of businesses falling somewhere between 1.00 and 3.00. A business with an EMR of 1.00 is paying exactly the average premium for its industry class code while a business with an EMR of 2.00 is paying twice the average premium.
So what is the lowest possible EMR? In theory it is 0.50. This would mean that a company’s actual losses were half of what was expected for its industry class code. In practice however it is very rare for a company to have an EMR of 0.50 or below.
There are a number of reasons why it is so difficult to achieve a low EMR. First insurance companies use different formulas to calculate expected losses so it is not possible to compare one company’s expected losses to another’s. Second even within the same insurance company different underwriters may use different expected loss formulas. And finally even if a company’s actual losses are lower than expected the company’s EMR may not be lower than 1.00 if its premiums are also lower than expected.
Still there are some things that businesses can do to lower their EMR. The most effective way to lower your EMR is to lower your claims frequency and severity. This can be accomplished by implementing safety programs and procedures conducting regular safety training and performing regular safety audits. Other ways to lower your EMR include maintaining accurate payroll records using multiple insurance carriers and qualifying for group experience rating programs.
While it is very difficult to achieve a low EMR it is not impossible. And for businesses that are able to do it the rewards can be significant.
What is the lowest possible experience modification rate?
The lowest possible experience modification rate is .
50.
How is the experience modification rate calculated?
The experience modification rate is calculated by taking the average of an employer’s three most recent experience periods and comparing it to the average for all employers in the same class code.
What is the experience modification rate used for?
The experience modification rate is used to determine an employer’s premium for workers’ compensation insurance.
How can an employer improve their experience modification rate?
An employer can improve their experience modification rate by maintaining a good safety record and having a good claims history.
What is a good experience modification rate?
A good experience modification rate is one that is lower than the average for all employers in the same class code.
How does an employer’s experience modification rate compare to other employers?
An employer’s experience modification rate is compared to other employers in the same class code.
How can an employer lower their experience modification rate?
An employer can lower their experience modification rate by improving their safety record and claims history.
What is the average experience modification rate?
The average experience modification rate is 1.
0.
What is the highest possible experience modification rate?
The highest possible experience modification rate is 2.
0.
How does an employer’s experience modification rate affect their workers’ compensation insurance premium?
An employer’s experience modification rate is used to determine their workers’ compensation insurance premium.
How can an employer with a high experience modification rate lower their premium?
An employer with a high experience modification rate can lower their premium by improving their safety record and claims history.
What is the relationship between an employer’s experience modification rate and their workers’ compensation insurance premium?
The higher an employer’s experience modification rate the higher their workers’ compensation insurance premium will be.
Is a lower experience modification rate always better for an employer?
No a lower experience modification rate is not always better for an employer.
What are some factors that can impact an employer’s experience modification rate?
Some factors that can impact an employer’s experience modification rate include their safety record claims history and the class code of their business.
How can an employer find out their experience modification rate?
An employer can find out their experience modification rate by contacting their workers’ compensation insurance carrier.
