By Kevin Beswick
Have you heard the term EMR or “Mod Rate” and not understood what it is, why it’s important, and/or how it is calculated? If so, this article is for you.
A Broad Overview
- The terms EMR and Mod Rate are both abbreviations for Experience Modification Rate. For the purposes of this article, we will refer to the term “EMR”.
- An EMR is a number used by insurance companies to measure a company’s injury history and project future injury potential.
- If a company has an EMR of 1.0, it means they are projected to incur the same amount of workers’ compensation expenses as other average companies within their industry. If an EMR is above 1.0, then more expenses are protected. If an EMR is below 1.0, then less expenses are projected.
Why EMR is Important
- The EMR number is used by insurance underwriters to calculate a company’s annual workers’ compensation premiums. So, higher EMR’s results in higher premiums.
- Over the past several years many companies have started asking their contractors for their EMR rating during the prequalification process. Some have even set maximum thresholds and do not allow companies with high EMR’s to work on their projects.
The EMR Calculation
- The National Council on Compensation Insurance (NCCI) or independent state bureaus calculate EMR’s annually using data from a three-year rolling window.
- The calculation excludes the most recent expired policy year due to open claims volatility. For example, a 2026 EMR calculation would utilize payroll and claim expenses from 2022 – 2024.
- Three core metrics are used to calculate an EMR. These metrics include verified payroll, three years’ worth of claim history, and projected losses.
- The calculation process involves various adjustments, including:
- Separating claims based on the total amount incurred (often $15,000 to $18,000) and assigning more weight to high dollar claims.
- Assigning classification codes to different employee groups based on anticipated risk associated with the tasks they routinely perform. This allows less weight to be applies for low-risk employees, such as administrative/office staff.
- Applying other values to serve as a buffer and preventing small companies from experiencing massive EMR spikes due to a single claim.
- Entering all metrics and adjustments into a final formula to determine the final EMR.
Tips for Lowering an EMR
- The best thing a company can do is establish and implement an effective safety program that is supported by management and involves employees. This will prevent injuries from happening in the first place.
- Provide some sort of altered work for injured employees to perform if they are not instructed to be off work. Insurance companies pay injured employees when they are off work due to an injury, which increases the cost of the claim and drives the EMR up.
- Periodically review your open claims and talk with your broker about them. Make sure they are managing them aggressively and closing them once employees have reached maximum medical improvement.
- Check the classification of your employee groups to make sure they are accurate. If administrative staff are classified the same as operations staff, it can increase the EMR.
