If you’re a business owner in Missouri, you likely know that your company is required by law to carry workers’ compensation insurance if it employs five or more people, and construction companies are generally required to have it regardless of their size, according to the Missouri Department of Insurance.
Beyond the legal requirement, though, workers’ compensation is important to your company, your employees, and your customers, as it protects each party in the case of an on-site injury. Without it, the medical expenses from even one claim could cause significant financial harm.
If all companies are required to have insurance, how are some paying so much less? The answer is likely nestled within their experience modification rate (EMR). In this blog, we explain what an EMR is, how it is used, and how it can help lower your workers’ compensation costs.
What is an Experience Modification Rate (EMR)?
Also known as an experience modifier, an EMR is used by an insurance company to help determine workers’ compensation premium costs. Based on your risk level, the EMR takes into account injury costs, claim history, and a prediction of future risk.
The National Council on Compensation Insurance (NCCI) collects and analyzes workers’ compensation data for the majority of the United States, including Missouri. The results of this research help determine the experience modifier (e-mod) to be applied to a policy, spreading the cost of a loss with members in a group that has similar characteristics and risk factors.
The e-mod (also referred to as mod-factor or mod-rating) is factored by comparing a company’s insurance loss for the prior year to what would be expected of a company with the same payroll during that period. “Experience rating recognizes the difference among qualifying employers with respect to safety and loss prevention,” the NCCI says.
The main benefits of the experience rating are that it customizes cost predictions and net premium costs to individual employers more accurately than relying on manual rating alone, and it incentivizes companies to prioritize loss reduction, which isn’t part of the manual rating model.
If your business is paying high workers’ compensation rates, odds are it’s costing you customers, as companies with lower rates can charge less for the same services.
Taking control of your EMR could be your company’s secret weapon to success.
How Does the EMR Impact My Workers’ Comp Rates?
The average EMR is 1.0, which means a business is considered an average risk to the insurance company when compared with other businesses with similar payroll. A rating higher than 1.0 (also referred to as a debit factor) means your company poses a greater risk, which would make your workers’ compensation premium higher. If your company has an EMR below 1.0 – or a credit factor – you’ll get a break on your premium in the form of a credit.
Below is a potential scenario that illustrates how EMRs work within similar companies:
Company A has a premium of $100,000 annually based on payroll and industry. Because it has a number of safety programs in place, the insurance company has determined it to be less risky and it has obtained a .85 EMR. This provides a 15% credit to the business’s premium, lowering it to $85,000 annually.
Company B is in the same industry and has the same payroll and $100,000 premium. However, this company has an above average number of claims, which raised their EMR to 1.2. This EMR will add 20% to the company’s premium, bringing its total to $120,000 annually.
A gap this size can seriously cut into profits and keep your company from being competitive in your industry. Additionally, some companies require those who bid on their projects to have an EMR of 1.0 or below, so having a higher rating could automatically disqualify your company from bidding.
Taking Control of Your Experience Modifier Rate
When it comes to your workers’ compensation premium, there are a number of factors that can help control costs.
Understand who you’re working with and consider working with an insurance broker over a direct writer. An insurance broker and a direct writer are both able to help with workers’ compensation coverage, however, they operate differently and play distinct roles in the insurance process. For example, a broker doesn’t represent a single insurance company while a direct writer is part of an insurance company that sells its policies to consumers. That means brokers have access to a broader range of products and a goal of finding the best coverage and pricing based on their customer’s specific circumstances and needs.
Prioritize, set and maintain high safety standards. According to the Occupational Safety and Health Administration (OSHA), “workplaces that establish an effective safety and health management system can reduce their workplace injury and illness costs by 20 to 40 percent.” This is an effective way to not only lower workers’ compensation rates, but to increase employee morale, create a more productive workplace, and improve product quality. Setting high safety standards and making company safety a priority is the number one way to get a better workers’ comp rate.
Here are a few safety-minded measures to consider implementing if you don’t have them in place already:
- Hold regular safety meetings. Gather with employees and let them know the importance of their well-being. Daily huddles or “toolbox talks” are the perfect way to remind everyone to be safe every day.
- Offer incentives for accident-free periods. Company parties, gift cards, and other recognition can go a long way to incentivize workers to practice safe work habits.
- Routinely inspect tools and equipment. Good record-keeping can help catch the majority of accidents that could happen as a result of faulty equipment. Don’t forget to schedule regular maintenance and inspect your buildings and grounds for any potential risks that could lead to accidents.
- Prioritize your culture of safety during the hiring process. Hire candidates who take safety seriously. Let candidates know safety expectations and standards from the beginning and train on your specific accident prevention procedures.
- Establish a return to work or modified duty program. This will help workers return to a productive environment after an injury and can reduce the losses that raise your experience mod, the Missouri Department of Insurance notes.
Request a loss control audit or inspection. Ask your insurance broker to conduct a loss control inspection, or a thorough inspection of your property and safety protocols to help reduce the risk of an accident. It can be an immense benefit to have trained professionals looking for safety concerns inside your company. Rather than thinking of this as bad or scary, look at it as the cost-saving opportunity it is.
Double-check your policy’s job classification, payroll, and claims. Each of these are key components in determining your EMR, and if they’re not correct, you may be overpaying for your workers’ compensation premium. Your insurance broker can help analyze your current policy and ensure it’s correct.
Not Sure What’s Next?
If your workers’ compensation rates seem high or if you’re unsure what it should look like, reach out to a qualified insurance broker for help. At independent insurance agencies like SBI, our priority is you.
We can help identify and understand your exposure, develop a strategy that works for your company, and help you understand what changes could positively impact your rates and overall working environment. Reach out to learn more.