Did you know that most, if not all, states need businesses to have a Workers Compensation Insurance Policy in place?
Being a business owner, you may have already complied with securing your employees with the worker’s comp policy as part of their fringe benefits. There are rumors of specific competitors in many industries pay higher premiums yearly as if they were being penalized while others are getting rebates. It might be true that you know a little about this already. However, as a business owner, it is essential to have it since work accidents can happen at any time. A significant part of your work comp policy depends on your EMR Score. Please keep reading to learn how to understand your EMR Rating and how to help you lower it for better premiums.
What is an EMR?
EMR stands for Experience Modification Rate, also called a Moderator or Factor, XMod, EMod, or just plain MOD. It is used to assess worker’s compensation insurance premiums. Third parties check out your history for an impression of future peril, let us say construction, for example. Insurers will use a company’s EMR to determine the cost of past injuries and what future liabilities will be. And average EMR Score is 1.0, and if yours goes below that, then your business is deemed safer than most. This means a lower workers comp premium. On the other hand, if your EMR is higher than 1.0, you are considered riskier, which can cause your business to be incapable of bidding on specific projects. In principle, EMODs are an indicator of competency or how well an organization performs.
What are these experiences all about? These include:
- Payroll records indicate premiums and losses in a given policy period.
- Records showing risks incurred by the insured
- Forms of insurance premiums paid to the company against the claims paid by the insurance company.
- Collection of data on insurance premiums and losses across industries within a state
The rationale behind all these data gatherings is the proper rating of risk factors and safety standards across companies in the same industry. Companies with effective and efficient Safety Programs are less likely to experience accidents or health issues with their employees. Therefore, they are also expected to have fewer to no compensation claims. We can say the opposite for companies with ineffective to no safety protocols in place. These factors have a direct correlation to the premium to be paid by employers of both businesses. Higher risk is equivalent to a higher insurance premium. Lower risk equates to a lower insurance premium.
The experience modification rating system used for the workers’ compensation program was developed by the National Council on Compensation Insurance or NCCI. It is a non-profit organization established by insurance companies to govern these programs for employees across the United States, including the state of Colorado. To date, NCCI also served as the rating bureau in the following States:
- Rhode Island
- South Carolina
- South Dakota
- New Hampshire
- New Mexico
- West Virginia
Other states like North Dakota, Ohio, Washington, and Wyoming have their rating bureau and NCCI in an advisory capacity.
In order to accommodate the needs of employers with inter-state operations, some states opted for their independent rating bureaus but continue to work with NCCI. These include the states of Indiana, New Jersey, New York, North Carolina, Wisconsin, and Texas.
Meanwhile, some states are independent of NCCI’s rating plan and have rating bureaus. These include the states of California, Delaware, Michigan, Minnesota, and Pennsylvania.
Why is EMR Score Critical?
Varied ratings do not only spell bigger or smaller expenses for each business. Each claim is also equivalent to lost productivity and lowers the competitive edge of the industry as well. For example, your company has a MOD rating of 1.4 due to several compensation claims from the past year. Your competitor, on the other hand, has a blemish-free record of .80! This “tiny” speck might effectively push you out of the competition and lose possible business.
How does the EMR Score or E-Mod work?
Most states require business owners to secure a workman’s comp coverage not just as a means to protect their employees.
On the other hand, the states went further to “reward or incentivize” the business owners for getting such coverage. The EMR Score or E-Mod is your company’s safety score as indicated in your work comp policy. Simply put, the more effective safety measures are, the less likely an employee will hurt himself. Less risk, less premium to be paid. More risk, the higher premium to be paid. Or there will be no changes at all if the rate remains average.
However, are all companies measured the same? Is the measurement used true for all industries? What about the volume of employees working for companies? How about the nature of their jobs? Indeed people working behind the desks doing clerical work are less likely to be injured in the same manner those in construction do.
Determining your EMR Score
Using an EMR worksheet that looks at different factors such as the type of incident, monetary value, and payroll. You can compare your company to the industry’s average EMR Score of 1.0 but remember that anything above 1.0 deems your company high risk. Looking at the best performers in your industry, they might have very low EMRs. If the top performers in your industry usually have very low EMRs, a 1.0 can be treated as a high EMR. You may also check your company’s performance. Since no employers have the same experience, look at yourself instead of others. It can happen that you previously had a high EMR, but what steps are you making to ensure its decreases? Do you have a more stringent or effective safety program in place, or are you focusing on implementing safety measures? Remember that your EMR changes from time to time and can be lowered.
How does a Good EMR Score affect your Worker’s Compensation Insurance premium?
Individual business owners may be eligible for an experience rating initially based on the premium they paid. A modification is computed for him, which could give him either a debit or credit rating.
A debit rating means he gets lower than the average score of 1.00 (1.1 or more) against the industry’s standard. So he is likely to be “penalized” with a higher premium. A credit rating, on the other hand, means he gets a lower than the average score of 1.00 (.9 or less) against the industry’s standard. He will likely get a rebate or reward in the form of a lower premium for his policy. It is also possible that there is no movement at all, meaning the rating remained on average.
To further narrow it down, we have listed here some factors that will affect your company’s Mod rating.
The Industry or Workers Compensation Classification
Your company and your employees must be appropriately classified due to the following reasons:
- Misclassification may result in a “penalty” of retroactive premium worth three years once a claim has been filed calling for an audit.
- Misclassified employees are likely to do irregular and improper claim frequency, which could be below or beyond the normal for that class code.
- Incorrect classification could also get you dropped or denied coverage by your insurer. If that happens, your new carrier will also likely raise a red flag. You might get refused, or they will give you a higher markup due to the increased risk.
The following factors determine the codes:
- Size of the business or payroll generated
- Expected Loss/frequency of claim
- Business age
Need to know your business class code? Download the file for Workers Compensation Business Class Codes to see for yourself.
Let us discuss it further:
Size of the Business or Payroll Generated
This is an estimated budget allocated for the payroll or compensation to be paid based on the number of employees for the succeeding year. This is one of the data the insurance company used to compute your company’s estimated premium. Overestimation can give you a refund. An underestimation will have you pay more.
When we say “Payroll,” it can also include:
- Overtime pay
- Holiday, vacation, and sick benefits
- Employer share in payments of Social Security and Medicare taxes
- Profit-sharing and other incentives
- Add-on benefits such as board and lodging for employees
- Reimbursements without proper documentation
On the other hand, these are exclusions::
- Group insurance or group pension plan payments
- Gratuities or tips received by employees from clients
- Special rewards are given for exemplary performance.
- Severance payments excluding earned vacation
- Payments for active military service
- Employee discounts on goods or products purchased from the company
- Meal allowances for overtime services
- Uniform or clothing allowance
- Payments made by a third party such as a group insurance carrier in case of disability
- The employer-provided compensation package, like company cars, work-related travel, perks for discounted services or memberships, and free tickets to non-work-related events.
- Employer share to retirement, meal allowance in the cafeteria, and other similar programs
The expected loss rate is pegged at $100 for each classification code based on the type of business and job description. Classification codes with a higher premium rate are also expected to have a higher loss rate and vice versa.
The lifespan of a business is also a factor considered in determining the EMR. However, only the data from the last three years are used in computing for eligibility. New companies are customarily given a modification rate of 1.0.
Lowering your EMR: The key to improving your rating and reducing your premium effectively
First and foremost, you will want to learn about any procedures for best practices your company is not following. That way, you can prevent hazards and injuries when prioritizing workplace safety for your employees. If you do not have one yet, devise a simple checklist or put visual reminders like posters across the company for a start.
Learn from your mistakes. If you have been in the business for some time, note that records used for assessing your EMR are within the last three years of your operations. Ensure proper auditing, recommendation, and action plans are put in place and followed. You would need to have a plan to manage injuries and workman’s comp claims. Document all the changes you have made and forward a summary to your insurer.
Lastly, determining Your EMR and then acting on lowering it is vital to keep insurance premiums down. Keep your industry in mind and plan out all safety measures you can take to lower your EMR rating. Contact us, and we will find the best insurance carrier for your needs.