Frequently Asked Questions About Experience Modification Rate

What Is A Good Experience modification Rate?

A good Experience Modification Rate is generally considered anything below a 1.00.  When you are below a 1.00 you start received discounts on your workers compensation insurance premiums.  The farther below a 1.00 the greater the discount; .95 = 5% discount, .80 = 20% discount, etc.

 

How low your Experience Modification Rate can improve is limited by something called your Minimum Mod (what your Experience Modification Rate would be with zero claims). 

 

Another consideration is whether or not you are in an industry, like construction, where an Experience Modification Rate above a 1.00, disqualifies you from bidding.  So, any Experience Modification Rate below a 1.00 is very good as it opens doors to earn revenue.

How Do You Calculate The Experience Modification Rate?

An Experience Modification Rate is calculated by dividing your Actual Work Comp Losses by Expected Work Comp Losses.  So, if your actual losses are, say, $46,924 and your expected losses were $50,081, your Experience Modification Rate would be .94 (46,924/50,081 = .94).  Calculating actual losses is easy.  You just get those figures from your loss run report.  However, how the rating bureau determines your expected losses is a much more complicated actuarial exercise.  You can learn more in the How Is An Experience Modification Rate Calculated - Expected Losses section.

What Is The Highest Experience modification Possible?

Between 2.0 and 3.0.  In 20 years of reviewing Experience Modification Rates for clients we have never seen an Experience Modification Rate of 3.00 or higher.  We have heard anecdotes that we can't verify, but we've never seen it.  The Experience Rating Algorithm has safeguards to keep and Experience Modification Rate from rising to, say, a 10.00.  That would not just dramatically increase but also put employers out of business.  So, for example, one safeguard is the "state max."  It's different in every state but the state max limits the amount of a claim that counts against (raises) your Experience Modification Rate.  $400,000 is close to most maximums.  So, if you had a $1 million claim, only $400K would count against you while the remaining $600K would not.

What Is A Company's Experience Modification Rate?

An Experience Modification Rate is a measurement of how safe your company is compared to other, similar businesses.  It provides an objective metric for you, your insurance company, clients, etc. to determine how safe your work environment is and how likely your organization is to have frequent and/or severe workers' compensation claims.  You can learn here about how critical nature of a business' Experience Modification Rate.  Very simply though, the average Experience Modification Rate is a 1.00.  Half of all business should be above a 1.00 (this is worse than average) while the other half below a 1.00 (better than average).

How Does The Experience Modification Rate Effect Controllable Premium?

The difference between your Experience Modification Rate multiplied by your Standard Premium and your Minimum Experience Modification Rate multiplied by your Standard Premium.  This difference is how much money you are paying your insurance company that is within your control to reduce.  A more detailed example can be found on the What Is A Good Experience Modification Rate page.

How Do I Reduce My Experience Modification Rate?

There are numerous strategies to reduce your Experience Modification Rate.  We like to group them into near and longer term strategies.  Immediate reductions, however, can only be accomplished through and independent audit to uncover data reporting errors, misapplication of state and manual rules, etc.  Immediate reductions are common through this process.  Near term solutions can include Return To Work programs, Injury Triage Programs, and Reserve Auditing.  Longer term solution involve safety procedures, utilization of safety devices, claims handling, etc.  Additionally, there can be some "tricks" (like "buying down" your Experience Modification Rate) depend on which states in which you do business.

What Is The Difference Between The Experience Modification Rate and The Total Recordable Incident Rate (EMR vs TRIR)?

The Experience Modification Rate and the Total Recordable Incident Rate are both safety metrics.  They provide an objective measurement of an organization's safety performance.  However, there are many differences between the two.  EMR gives you a long-term perspective while a company's current TRIR is a reflection of the past year.  There are many more differences between both EMR and TRIR and you can use them for different purposes or in conjunction with one another.  For more information see our post on TRIR vs EMR

Stuart Cytron

stuart@cytrongroup.com

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