What is an EMR?
Experience Modification Rate, also known as EMR, is a number that is used by insurance carrier when calculating premiums for Workers’ Compensation policies. The calculation considers numerous data points such as claim history, loss value, job classification rate, and payroll. The loss data of the contractor is compared to losses suffered by other companies performing the same or similar work in the same state.
EMR is based on the contractor’s actual claim history from the previous three to five years. Contractors just starting out who do not have at least three years of loss history to examine will typically be issued a loss rating of 1.0 until they’ve been in business for three years at which time an appropriate EMR can be calculated.
An EMR of 1.0 is average, meaning the contractor is found to be no more or no less risky than all other contractors in the state. A rating of 1 or below is an indicator that the contractor is relatively safe and whose losses, if any, are within the normal range of occurrence and/or severity. An EMR above 1.0 indicates the contractor is riskier. The number of incidents, the type of incident, and the amount paid out for each loss are all considered when calculating an EMR.
An EMR of 1.0 or below will cause your premium to be discounted, and you will pay less. Alternatively, an EMR of 1.0 and above will cause you to incur a greater premium. Take for instance your auto policy. If you have been accident and ticket-free for five years, your auto insurer may award you discounts and savings because your driving history has proven your ability to operate your vehicle safely. However, if you are issued a traffic citation or are involved in an accident, your premium will likely rise because you are considered a riskier driver and more likely to be involved in an incident that may result in a loss, and, ultimately, an auto claim.
Why does EMR matter and how can I improve ours?
Owners or General Contractors routinely evaluate the EMRs of bidders competing for a contract. Suppose one bidder has an EMR of .75 and another has an EMR of 1.25. The difference in EMR alone could be the deciding factor, which, despite how you look at it, is profound. Preferential treatment may be given to a competitor with a lower rating.
Although an EMR is calculated by evaluating loss history, the number itself is often used as a predictor of future losses. Insurance Carriers often assume that a poor loss experience in the past indicates a poor expectation of future losses thus insurance premiums are directly impacted. Let’s say your unmodified premium is $100,000. An EMR of .75 would produce $25,000 in savings resulting in a premium of $75,000. An EMR of 1.25 would add an additional $25,000, resulting in a premium of $125,000.
Toolbox talks, awareness, and a culture built around safety are key to reducing an EMR and preventing losses before they occur. Wearable technology, like Triax, may be a game-changer for the industry. Construction is an inherently dangerous line of work but there is a lot that can be done to increase job-site safety. Ultimately the goal is to prevent accidents from happening in the first place, so workers make it home the same way they left, safe and with their families.
About the Author:
Lindsay Ferg is an Account Manager at CR Solutions and is based out of company headquarters in Alpharetta, GA. Follow CR Solutions on Linkedin to stay up to date on our recent insurance risk management articles and insights.