For employers, it can be one of the least transparent and least understood aspects of workers’ compensation. And yet, it’s one of the most important factors in determining your premiums.
We’re talking about your experience modifier rate (EMR). It’s a complex formula for calculating premiums that involves classification codes, payroll projections, loss ratios and your claims history compared with the average in your industry. It’s how your workers’ compensation insurance carrier keeps track of occupational injuries in your business and measures future risk.
Unfortunately, many employers simply take what they get for an experience modifier, settling for behind-closed-door calculations made by a broker, the National Council on Compensation Insurance (NCCI) or state rating bureaus.
But if you want to lower your premiums, it’s crucial to be proactive about your experience mod.
Here’s an example of how it works. The average experience modifier across all industries is 1.0. But let’s say, because of your company’s accident and claims history, your insurance carrier assigns your workers’ comp policy an EMR of 1.3. That means your premiums could be as high as 30 percent more than others in your industry. That higher EMR also means you’re a less attractive risk to underwriters, which can translate to higher premiums, lower profits, loss of competitive edge and even difficulty finding affordable coverage. In industries like construction and oil and gas services, an EMR greater than 1.0 can also impact your ability to qualify for work.
On the other hand, a lower EMR makes you a more desirable risk for underwriters and can mean lower premiums, a better competitive position and greater overall profitability for your business.
Can you actually influence your experience modifier?
Yes, and you should start by being aware of a few key issues:
Data accuracy: Experience modifier calculations can sometimes be inaccurate if there are errors in payroll amounts, job classifications or claim reserve numbers, or any open claims that should be closed. It’s important to ensure the data and information being reported to NCCI and used to calculate your experience modifier is accurate.
Your EMR: Compared to your industry peers and what’s driving your EMR.
The number of closed claims: As reported on your EMR worksheet.
Reserves on open claims: Claim reserves count against you as an “actual” loss, so be sure your carrier isn’t over-reserving.
Finally, here are seven steps you can take to boost your EMR and lower your premiums:
- Establish an effective safety program to reduce workplace hazards, injuries and workers’ comp claims. Accident prevention is the single most important aspect of effectively managing your EMR.
- Thoroughly train your workforce to reduce the expenses associated with new and/or improperly trained employees getting injured on the job.
- Develop an accident investigation plan to gather all crucial data about accidents and injuries, and implement corrective actions through your safety program.
- Report claims promptly to avoid unnecessary medical costs and extended recovery periods associated with an employee not getting timely treatment.
- Have an active claims management program to proactively guide each claim toward successful resolution. This may include different protocols for responding to First Aid situations and it may include telemedicine options for Medical Only claims. Fast, compassionate response from the beginning often contains situations before they escalate.
- Implement a robust return-to-work (RTW) program to reduce the cost of indemnity payments and get injured workers back on the job as soon as possible. The EMR formula discounts Medical Only claims by 70 percent, so offering RTW can have a significant impact on your rating.
- Partner with an insurance broker who knows your business and can assist you in conducting regular audits of your experience mod worksheet. By correcting errors found in the audit process, you can potentially recoup thousands of dollars paid in premiums. It’s also important to know when your EMR is calculated, which may be six months before your renewal date. Once you know this, you can proactively review open reserves prior to that date.
Keeping workers’ comp costs under control can be a real juggling act, and it’s crucial to be proactive about things you have some control over. Your experience modifier is one of those things, and it’s a crucial aspect in determining your premiums.
To learn more about keeping your workers’ compensation costs under control, contact our risk management professionals.