Workers comp coverage is a requirement for all businesses in the United States. Almost all US states, except Texas, require business owners to carry a workers’ compensation policy for their employees. Every business owner wants to get affordable workers’ compensation premium rates. Many factors influence the premium rates of workers’ comp coverage. One of them is the company’s Experience Modification Rate (EMR). EMR is a method insurance companies use to estimate workers’ comp premiums. EMR calculates the company’s liability risks through workers’ compensation claims history. The lower the EMR, the cheaper the workers’ compensation premium rates. Business owners especially new ones often ask, how low can workers comp EMR go?
What is EMR?
EMR or Experience Modification Rating is a multiplier used by insurance providers. Insurance companies use EMR to determine a company’s workers’ comp premium costs.
How is the Experience Modification Rate Works
E-MOD works as a claims losses incentive. It can either act as a debit or credit. Companies with infrequent claims losses get credits after the policy year. This credit will serve as a discount on workers’ insurance premiums. Companies with frequent claims will have debits after the policy year. This debit will serve as a surcharge. Insurance companies add this surcharge to workers’ comp premiums.
What is the Experience Rating Period?
The experience period lasts for 3 consecutive years. E-mod rating period contains claims data for three policy years. Insurers do not include the most recent completed year in the three policy years. Insurance companies use three years of data to get an accurate observation of a company’s losses.
Qualifications for Experience Modification Rate
The qualification requirement for experience mod depends on the location of your business. To be eligible for EMR in Colorado, business owners must pay an average of $4,000 of workers comp premiums for 3 years.
How is Workers’ Compensation Premium Calculated?
Insurance companies use three factors in calculating workers’ compensation premiums. The three important factors are class code rate, payroll costs, and EMR. Insurance providers follow a formula to determine a company’s workers’ comp rates. The formula is the class code rate multiplied by payroll costs divided by $100 then multiplied by the EMR. Most states use the classification codes from the National Council of Compensation Insurance (NCCI).
Businesses operating less than three years typically get the industry average EMR which is 1.0. Having an industry-average EMR is good for businesses.
How Low Can Workers Comp EMR Go?
There is no specific data on how low can workers’ comp go as every business has different risks and liabilities. EMR acts as a loss claims incentive. Businesses must aim to get an EMR lower than the average.
Factors Affecting EMR
EMR varies from company to company as several factors affect a company’s EMR. These factors significantly affect worker’s compensation premium rates.
- Number of Claims
EMR greatly depends on the number of claims a company has. An increase in the number of claims signifies increased risks of work-related accidents and illnesses. The more claims a company has, the higher EMR it will have.
- Frequency of Claims
A claim is a claim. Whether small or big claims, it all counts. Minor frequent claims can still negatively affect your company’s EMR. Occasional minor claims do not affect a company’s EMR.
- Severity of Claims
Though most insurance providers give greater weight to the frequency of claims, claims severity can also affect your EMR. The severity of the claim influences the cost of claims. One severe claim can hugely cost insurance providers which may result in increased EMR.
- Costs of Claims
The costs of claims also play a huge factor in the rise of EMR. The costs of claims involving disabilities are typically high which may increase the EMR. Companies with medical-only claims usually get a good EMR.
- Open vs. Closed Claims
Open claims are claims which require temporary disability benefits. Closed claims are claims which only require medical treatment and the worker can go back to work immediately. Though both can affect your company’s EMR, open claims can significantly increase your EMR.
- Industry Expectations
The risk of accidents varies by business industry. To get a company’s EMR, the insurance carrier compares a company’s claim history against other businesses in the same industry.
- State Requirements
Qualification for EMR varies according to state requirements. Businesses in Colorado can qualify for EMR if they have an average workers’ compensation premium of $4,000 for 3 years.
- Years in Business
Businesses with 3 years or less in operation usually get an average of 1.0 EMR. After 3 years, businesses will receive experience mod ratings based on the company’s frequency and the number of claims. Businesses with infrequent and small claims will likely have lower workers comp rates.
How Does EMR Affect My Insurance?
The E-mod rating has a significant effect on the rise and fall of workers comp rates. EMR acts either as a credit or debit for your mod. A modification factor greater than 1.0 is debit mod. Debit mod means your compensation claims are greater than expected. When claims losses are higher than expected, insurance companies add a surcharge. This surcharge will increase the premium rates. Lower than average EMR is credit mod. Credit mod means claims losses lower than expected which results in a discount in insurance premiums.
How Long Do Claims Affect Experience Rating
It is important to immediately report claims as it stays in the experience mod rating formula for 3 years. Immediate reporting of accidents will speed up the filing and closing of claims. The sooner the claims close, the sooner they will disappear from the EMR books. A company without claims for 3 years will have noticeable reductions in workers’ comp premiums.
How You Can Improve Your EMR
Mod rate is all about a company’s future risk of work-related accidents. Maintaining a safe and healthy work environment will lower the frequency of claims losses. Making infrequent small claims will improve any company’s EMR. To prevent claims losses, businesses must develop programs focusing on these important points.
- Proactive Workplace Safety Program
- Return to Work Program
- Risks Prevention Procedures
Tips on How to Maintain a Safe Workplace
Every business must develop an effective employee safety program for businesses. It will lessen the risks of occupational accidents and illnesses. A sound safety program must include the following:
- Conduct regular meetings with your employees.
Conducting meetings with employees will give better insights into safety issues present in the company.
- Create a safety committee.
A safety committee is responsible for communicating health and safety issues between the management and employees. The safety committee will assess health and safety hazards present in the business. It will also evaluate the effectiveness of the company’s safety program and help improve programs in place.
- Perform regular equipment and tools inspections.
This will ensure equipment and tools are in good working condition that will prevent accidents and injuries at work.
- Maintain an orderly workplace.
Disorganized tools, messy floors, and tangled cords can cause workplace accidents. Keeping your workplace clean and organized will prevent numerous accidents and injuries.
- Provide adequate work training and development.
Ensure employees are adequately trained for their job roles and responsibilities.
- Provide appropriate tools and equipment.
Employees must use appropriate tools and equipment according to their duties and responsibilities. Provision of incorrect tools can result in accidents and injuries.
- Provide reasonable rest periods to employees.
Long and tiring work schedules can reduce an employee’s focus and alertness. Overworked employees are prone to errors which may lead to accidents and injuries.
- Rewarding employees who practice safe workplace behavior.
Providing small rewards to employees encourages them to follow and maintain workplace safety. This will significantly reduce the chances of workplace injuries.
Develop an Efficient Return-to-Work Program
Developing an efficient return-to-work program will lessen the number of open claims. The program will help sick or injured employees to return to work in a temporary light-duty or limited capacity. An effective return-to-work program must include:
- Support from company management.
Every program needs management support to become successful. A display of support from the company leaders encourages compliance and support from employees.
- Create a written policy and procedures.
Ensure return-to-work policies and procedures are in line with the legal requirements of the Americans with Disabilities Act (ADA).
- Encourage a return-to-work culture.
To encourage a return-to-work culture, educate employees about the importance of returning to work. Providing adequate information about the process of returning to work will encourage employees to return to work as soon as they can.
- Provide RTW training to leaders.
Educate them about the benefits of the RTW program to the company, management, and employees.
- Assign an RTW coordinator.
An RTW coordinator can be a nurse, HR employee, or benefits coordinator. The coordinator works with various department leaders to outline RTW duties and responsibilities. The coordinator must also evaluate the compliance and success of the RTW program.
- Establish detailed job descriptions.
Ensure there are specific work descriptions for employees under the RTW program. Job roles assigned to RTW employees must be appropriate for the worker’s injury restrictions. Make sure work scope and duties are compliant with the U.S. Equal Employment Opportunity Commission (EEOC).
- Set up modified duty options.
Creating modifications in job responsibilities will allow employees to go back to their old job.
- Conduct program evaluation.
Conducting an evaluation will help in the success and improvement of the program.
Risk Prevention Procedures
All businesses come with risks and hazards. Some business industries are more prone to accidents and injuries. Construction, healthcare, mining, and manufacturing business have the highest risk of accidents and injuries. All businesses, especially the high-risk ones must develop risk preventive procedures. Developing risk preventive measures will help in lowering the frequency of claims.
- Conduct regular safety training for employees.
The training must educate employees on how to avoid accidents and injuries. It must also train employees on how to handle accidents and prevent further injuries to prevent claims losses.
- Provide ergonomic training to employees.
Workplace strain injuries are very common. Reports from the Bureau of Labor Statistics showed nearly 20% of workplace injuries and illnesses involved the back. Following correct lifting practices and body mechanics can lower strain injuries in employees.
- Create an accident investigation procedure.
Conducting accident investigations provides a better view of how an accident happened. It helps in improving work procedures and preventing accidents from recurring.
- Disciplinary Actions for safety violations.
Employees who don’t follow company safety rules create avoidable hazards for themselves and other employees. Enforce warnings and penalties for employees who violate safety protocols.
- Use workplace labels and signs.
Putting labels and signs is an effective way to demonstrate proper procedures. They can also act as hazards reminders or warnings.
- Use of Personal Protective Equipment (PPE)
Provide personal protective equipment according to employee’s job roles and needs. PPE helps in reducing injuries in case of workplace accidents.
- Employ an Occupational Clinician
An occupational clinician helps companies maintain health and safety in the workplace. They inspect and identify workplace hazards to reduce accidents and injuries at work.
- Construct Risk Preventive Policies and Procedures
Create policies to reduce or eliminate identified hazards based on the hazard evaluation conducted by the occupational clinician.
Workers’ Compensation Insurance Savings Strategies
Insurance premiums differ from one insurance company to another as premiums depend on various factors. Businesses can save money on workers compensation insurance premiums by:
- Compare and shop around for workers comp insurance
Shopping for the best workers comp policy is a tedious process. Get policy quotes from various insurance providers to compare prices and coverage. This will not only save you money but will also give you the suitable coverage your business needs.
- Safety First
Company safety is the number one determiner of workers’ comp premiums. Keeping your company safe will guarantee savings in your policy premiums.
- Meticulous Hiring Process
The HR department must conduct a meticulous hiring process to ensure you only hire qualified employees. Hiring the right people reduces workplace hazards. To make sure you hire the right people for the job, consider the following:
- Job descriptions
Creating a detailed job description is essential in the hiring process. Hire applicants with knowledge and skills suitable to the job descriptions needed. Hiring people without adequate skills and knowledge is a disaster in the making.
- Background Checks
It helps recruiters to verify the qualifications of applicants. Background checks may include reviewing employment history, criminal and driving records.
- Pre-employment Drug Testing
According to the Substance Abuse and Mental Health Services Administration, drug users are four times more prone to make mistakes and get involved in workplace accidents. The use of illegal drugs can alter focus and alertness which may cause accidents in the workplace. Conducting pre-employment drug testing ensures qualified applicants do not use prohibited drugs. Check if it’s legal to conduct pre-employment drug testing as state laws vary by state. In Colorado, employers can conduct pre-employment and random drug testing for employees.
- Effective Claims Management
Workers’ comp premiums depend on the number, frequency, and severity of claims. To lessen the impact of claims losses in your workers’ comp premiums, you must have effective claims management. An effective claims management must have:
- Immediate First Aid Treatment
Providing immediate first aid treatment to injured employees may reduce the severity of injuries. Infrequent minor claims don’t have much impact on workers’ comp EMR.
- Rapid Injury Reporting
Effective claims management speeds up the reporting and filing of claims. Delay in injury reporting may cause the denial of workers’ comp benefits. Some states and OSHA impose fines on companies with delayed injury reporting.
- Accident Investigation
Accident investigations determine if the accident is covered by workers comp coverage. It can also help in improving company safety rules and practices.
- Accurate Recordkeeping
Proper documentation of workplace accidents helps in speedy claims reporting and filing. Documentation of accidents is a piece of beneficial evidence in case of lawsuits.
- Check Employee Class Codes
One factor that influences the costs of workers’ comp premiums is class codes. Class codes are based on the number of risks employees face at the workplace. The more risks workers have, the higher the workers’ comp premiums. Check if your employees have the correct class codes. Incorrect class codes may result in an increase in policy premiums.
- Avail Insurance Discounts
Insurance discounts are one of the best ways to lower your workers’ comp cost. Insurance companies may give discounts to businesses with:
- Established Safety Program
- Return-to-Work Program
- Drug-free Workplace
- Multiple insurance policies from one provider
Examples of insurance policies a business can get:
- Workers Comp
- E&O Policy, Business Liability Insurance
- Business Auto Insurance
- Commercial Property Insurance
- Contractors Insurance
- Develop a Wellness Program
A wellness program helps in maintaining the health of employees. Healthy employees are less prone to injuries and sickness.
- Compliance with State Laws and Requirements
Each state has specific workers’ compensation laws and requirements. Ensure your business is compliant with your state laws. Businesses that fail to comply may face steep fines and penalties.
Though workers’ compensation policy is costly, it is extremely beneficial in all types of businesses. Even though it is designed to protect employees against health and safety hazards, it also protects business owners. It protects businesses against financial loss and liabilities in case of workplace accidents. The best way a business owner can save money is to get a workers comp policy.
AIS has a team of insurance agents knowledgeable of workers comp state laws and requirements. We assist business owners in getting suitable and affordable workers comp coverage. Contact us now and let’s discuss how we can protect your business.