If there’s one thing a business owner doesn’t want, it’s paying high workers’ compensation insurance premiums. One way to decrease the workers’ comp premiums that you pay, however, is by reducing your experience modification.
Below, we’ll chat about experience modification: What is it? Why should you care about your rating as a business owner? And what can you do to reduce experience modification, and therefore, worker’s compensation costs?
Let’s dive in.
WHAT IS EXPERIENCE MODIFICATION?
First things first, what is experience modification? Experience modification, according to The Workers’ Compensation Insurance Rating Bureau of California (WCIRB), is calculated by comparing a business’s actual losses to its expected losses.
Actual losses include “medical and indemnity claim costs resulting from a work-related injury that an insurance company has paid or expects to pay in the future.” Expected losses represent the amount of loss an insured party experiences compared to the amount of loss similar insured parties have.
Experience modification might also be referred to as a workers’ comp experience mod, an EMR safety rating (EMR stands for experience modification rate), or Ex Mod.
WHAT IS AN EXPERIENCE MODIFICATION RATE?
An experience modification rate (EMR) is assigned to every business that purchases worker’s compensation insurance. The EMR is a number that reflects the company’s past losses due to worker injuries. It is used by insurers to help predict future worker injury claims and to set premiums for worker’s compensation insurance.
There are various elements that can affect a business’ EMR. These can include:
- The type of business
- The number of employees
- The industry, and
- The state in which the business is located
Businesses with a high number of worker’s compensation claims will typically have a higher EMR.
FORMULA FOR CALCULATING EXPERIENCE MODIFICATION
Experience Modification = Actual Losses / Expected Losses
These losses involve several factors, including:
- The number of worker injury claims filed
- The cost of those worker injury claims, and
- The amount of time that has passed since the last worker injury claim was filed
EMR’s are based on information from your insurance claims history, reported to the National Council on Compensation Insurance (NCCI), over the past five years. However, only claims from the past three years will be assessed by insurance agencies.
If you’re a newer business that has less than three years of claims history, your EMR is typically calculated at a base rate of one.
WHY SHOULD I CARE ABOUT EXPERIENCE MODIFICATION?
A business’s experience modification rate represents, numerically, how safe your business is compared to others in your industry.
Insurance companies use your ex mod to evaluate and measure the amount of risk they are taking on by having you as a client. A higher ex mod means paying higher workers’ compensation insurance premiums.
Standard ratings begin at one; one means your business is as safe as the average. For businesses who have had safety incidents, however, they’ll likely receive a number higher than one—perhaps a 1.2 depending on the accident or number of accidents. As for small businesses with spotless records, they might even score lower than one.
This considered, you might be asking yourself: How does my business fare? What is the highest experience modification rate possible? Workers’ Compensation Consultants tell us that any ex mod over 1.0 could be considered high if you’re comparing your business to its industry average.
In fact, “if you are comparing to the best performers within your industry, who may have very low mods, a 1.00 could be considered high.”
WHAT IS CONSIDERED A GOOD OR BAD EMR?
As a business owner, you’re always looking for ways to save money. Worker’s compensation insurance is one of those necessary evils that can eat up a lot of your budget if you’re not careful. One way to keep your worker’s compensation costs down is to maintain a good experience modification rate.
EMRs can commonly range between 0.48 to 1.25 or higher. The lower the rating, the better. A high rating, above a 1.0, is considered a bad EMR and will increase your worker’s comp premiums.
Again, worker’s compensation insurance rates are based on your company’s claims history. The more claims you have, the higher your rates will be. Your EMR is a way to measure this claim history and predict future costs.
A good EMR is one that is below average for your industry. For example, if the average EMR for construction companies is 0.85, a company with an EMR of 0.75 would be considered a good EMR.
HOW TO REDUCE EXPERIENCE MODIFICATION
So, how can you reduce or improve your experience modification rating? Below, we will provide you with some guidance.
IDENTIFY YOUR RISKS
The first step is to identify your risks. Each business will face its own unique set of them. Conduct a risk assessment to find out what your business’s risks are. As the adage goes, “you can’t fix what you don’t know.”
IMPLEMENT A KILLER SAFETY PROGRAM
At the core of a low experience modification rating is a stellar safety program. After all, no injuries or incidents equals no claims—and no claims equal the lowest possible EMR.
Now, before you doubt the effectiveness of a top-notch safety program, let’s look at the statistics. The Occupational Safety and Health Administration (OSHA) reports that “employers who establish safety programs (and return-to-work programs) can reduce costs related to workplace illness and injury by up to 35%.”
With reduced costs up to 35%, imagine how much more you’ll be saving on your workers’ compensation premiums. The basics of your safety program should include:
- Safety Meetings
- Safety Tests
- Safety Equipment and Tools (i.e. safety goggles, safety shoes)
- The list goes on
Safety, of course, will look different for every industry. The bottom line, however, is to provide and do whatever you can to prevent employees from getting hurt or sick.
So, ensure that employees:
KNOW HOW TO SAFELY PERFORM THEIR WORK
Don’t assume employees ‘just know’ how to do their job or work off the bat. As an employer, it’s your responsibility to train and teach your employees.
HAVE THE PROPER TOOLS AND EQUIPMENT
For employers with remote employees, this might be as simple as providing ergonomic office equipment to reduce carpal tunnel workers’ comp claims!
Read on to learn what workers’ compensation looks like for remote employees.
ARE REWARDED FOR SAFE BEHAVIOR
Consider implementing a safety-incentive program.
OSHA recommends safety-incentive programs, which reward “workers for reporting near-misses or hazards.” Safety-incentive programs typically reward employees for reporting unsafe conditions and making the workplace safer altogether. Programs “provide positive reinforcement for reporting illnesses and injuries.”
A FINAL WORD
Throughout all of this, it’s crucial to ensure your management and leaders are on board. Additionally, by documenting the safety measures you’ve put in place, the chances of lowering your EMR increase; thus, decreasing workers’ compensation insurance premiums.
Underwriters will be more likely to provide better terms and lower insurance premiums for businesses that document and articulate what they’ve done and the steps they have in place to reduce risk. Depending on the size of your business, you could save thousands of dollars.
It’s a win-win.
Read on for more information on risk mitigation: what is it and how can you do it?