SAFETY SOLUTIONS: Do You Know What Your Experience Modification Rate Is?

Three attorneys have contacted me in the past month to potentially represent their clients. Two of these cases were potential wrongful deaths and one was a machine guarding amputation case.

The machine guarding amputation case involved a military veteran who after serving our great nation for three tours in Afghanistan returned back home to attend a technical college course to learn a new trade and then while operating a metal shear (that was not properly guarded) amputated two of his fingers. In each case before I agreed to represent them as an expert witness, I asked the attorneys what their clients Standard Industrial Classification Code (SIC) was and what their Experience Modification Rate (EMR) was and all I heard on the other end of the phone was silence. As an owner or manager, do you know what your SIC and EMR is?

Manufacturers of plastic products usually are in Standard Industrial Classification (SIC) Codes 3083 and their NAICS code is 32613. So to see how my company compares to my competitors company, I need to know all of this information. Experience Modification Rate (EMR) has strong impact upon a business. It is a number used by insurance companies to gauge both past cost of injuries and future chances of risk. The lower the EMR of your business, the lower your worker compensation insurance premiums will be. An EMR of 1.0 is considered the industry average.

If your business has an EMR greater than 1.0 the reasons are simple. There has been a worker compensation claim that your insurance provider has paid. To mitigate the insurance company’s risk, they raise your worker compensation premiums. The bad news is this increased EMR sticks with you for 3 years.

How Experience Modification Rates are calculated

The base premium is calculated by dividing a company’s payroll in a given job classification by 100, and then by a ‘class rate’ determined by the National Council on Compensation Insurance (NCCI) that reflects the inherent risk in that job classification. For example, a machine operator has an inherently higher risk of injury than a receptionist, so their class rate is significantly higher.

A comparison is made of past claims history to those of similar companies in your industry. If you’ve had a higherthan- normal rate of injuries in the past, it is reasonable to assume that your rate will continue to be higher in the future. A higher insurance rate means less money for you and your company. Insurers examine your history for the three full years ending one year before your current policy expires. For example, if you’re getting a quote for coverage that expires on January 5, 2016, the retro plan will look at 2015, 2014 and 2013.

NCCI has developed a complicated formula that considers the ratio between expected losses in your industry and what your company actually incurred, as well as both the frequency of losses and the severity of those losses. A company with one big loss is going to be ‘penalized’ less severely than a company with many smaller losses, because having many small losses is seen as a sign that you’ll face larger ones in the future.

The result of that formula is your EMR, which is then multiplied against the manual premium rate to determine your actual premium (before any special discounts or credits from your insurer). Essentially, if your EMR is higher than 1.00, your premium will be higher than average; if it’s 0.99 or lower, your premium will be less.

How does a high EMR affect costs? In Business, if it’s under 1.00 – no one really pays attention to it. If it’s over 1.00 –it is now a hot topic: “How did it get to over 1.00?” “What’s wrong with our safety program?” “How could this happen to us –I thought we had a pretty good safety program – our incident rates are below BLS averages for our industry?”

An EMR of 1.2 would mean that insurance premiums could be as high as 20% more than a company with an EMR of 1.0. That 20% difference must be passed on to clients in the form of increased bids for work. A company with a lower EMR has a competitive advantage because they pay less for insurance.

How do you lower EMR?

The good news is that EMR can be lowered. An effective safety program that eliminates hazards and prevents injuries is the starting point. No injuries equal no claims.

In the real world injuries will happen, but the response can help keep EMR from increasing as much as it could without proper management. Having a plan to manage injuries and workers compensation claims is a must to get control of the EMR.

Modification Rates and reduce your overall costs. Reducing EMR gives you an edge over your competition when bidding out work and save money. Plastic manufactures and owners are realizing the benefits of low EMR numbers and often prequalify companies before they even look at bids. It would be unfortunate to lose business and money because of high EMR.

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