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.
For more information, click on the author biography at the top of the page.