TL;DR
- Small, frequent injuries raise your EMR more than one big claim
- Higher EMR = higher workers’ comp premiums
- Focus on prevention, early reporting, and doctor-led triage
- Quick return-to-work plans help reduce costs
- WorkPartners can help lower your EMR with remote injury management
As a business owner in high-labor, physically demanding industries like energy and construction, you already know that keeping your worker’s compensation insurance costs low starts with having a low Experience Modification Rate or “E-mod Rate”. And so, your entire focus is always on keeping out those big injuries and high-cost claims. But what you may not realise is that all those frequent smaller incidents – brushed off as minor accidents – are in fact, affecting your bottom line by slowly driving up your e-mod rate.
For small businesses operating in physically demanding, HSE-sensitive sectors like construction and oil & gas, repeated incidents could be costly. That is why understanding how frequency vs severity impacts your e-mod is critical to keeping your insurance costs competitive.
Let us understand this better.
How is the Experience Modification Rate or EMR?
Experience modification rate or EMR is like a credit score that helps insurance providers assess your workplace’s riskiness or its propensity for injuries.
How is it calculated? Usually, the National Council on Compensation Insurance (NCCI) or the bureau for workers’ comp rating in your state takes care of this. The formula accounts for:
- Ratio between your industry’s expected losses and your company’s actual losses
- Incurred losses’ frequency (or prevalence) and severity
Ideally, you should strive to keep actual losses lower than expected ones for a low EMR. Now, if your EMR turns out to be 1.00, your company is at par with the industry average in losses.
- A less than 1.00 EMR suggests you are performing better than your peers or your workplace has fewer injury risks. And this translates to a lower premium vis-à-vis industry peers.
- However, a greater than 1.00 EMR signals your performance is worse than others in the industry or your workplace is riskier. And that translates to higher than average premiums and greater compensation costs.
Don’t forget about the frequency and severity of losses though since this impacts your premium too.
In fact, this might surprise you. The regulatory penalty for a business with multiple small losses is greater than a business that suffers one big loss.
Why? Frequent claims indicate you might experience more such losses in the years to come. Hence, insurance carriers deem you as comparatively riskier and charge higher premiums.
Frequency vs. Severity: What Matters More?
The EMR of your company is calculated by the National Council of Compensation Insurance (NCCI) or your state’s workers’ compensation rating bureau. The formula used compares a company’s actual losses to expected losses, and then compares them to similar companies in the HSE industry.
To understand why frequency hurts your e-mod more than severity, let’s look at how the EMR calculations are done.
- Primary: This refers to a claim cost’s initial part, which is $17,000 (in most states)
- Excess: Any expenses beyond the $17,000 threshold (or split point)
In the EMR calculation formula, primary losses carry more weight. While excess losses matter too, they don’t contribute as significantly to the calculation.
This is because in high-labour and physically-demand industries, where HSE risks are high, a single major accident is often considered random. However, small, frequent losses bring a company’s safety culture under scrutiny.
What are the key factors that affect your Experience Mod calculation –
- Frequency Hurts Small Organizations: The total primary loss is higher for small, frequent losses than one big loss. And since primary losses carry more weight in experience modification rating calculation, the final EMR ratio is hit hard.
- Severity Cannot Be Ignored: Large claims sting too, even if not as much as small, frequent ones. They can inflate EMR for small enterprises, spike total losses, and pave the way for higher premiums by alerting underwriters. Still, severity is generally less destructive than frequency.
- Company Size Matters: Expected losses are higher for big companies and that means the experience mod calculation has a larger denominator. Also, a big weighting value balances the impact of individual claims. Hence, fluctuations in frequency and severity don’t affect the EMR for big companies dramatically.
Why Experience Modification Rate Matters for your Company’s Bottomline?
Just to reiterate what we explored before – a high EMR implies a high-risk workplace, bigger insurance premiums, and hence, greater compensation costs. In fact, you might end up paying a premium that is 25 to 50% higher than an industry peer with a lower experience mod rate.
What does that mean for your bottom line? It weakens, from poor cash flow and reduced profitability. You lose your competitive edge. In sectors like construction, a high EMR might even make it challenging for you to bid for a large or high-return project.
However, by lowering your EMR even marginally (say 1.0 to 0.9), you can save substantially every year and augment the cash flow. This is especially true for big employers.
How can you reduce losses and lower your Experience Modification Rate
Here are a few effective strategies that business owners and safety managers can use to lower the experience modification rate over a period of time.
- Focus on Prevention:
- Regular safety training sessions help workers avoid mistakes and identify hazards that lead to accidents. It also teaches them how to deal with emergencies and use personal protective gear, safety aids, and exits.
- Encourage them to voice safety-related concerns without hesitation and hold managers accountable for the success of safety programs.
- Ensure employees know how to handle various machines and do repetitive actions (lifting, bending, pushing, etc.) safely.
- Take measures to prevent falls, trips, cuts, and burns.
- Your worksite should be clean and organized, and dangerous materials and chemicals must be labeled and stored properly.
- Avail Doctor-Led Injury Triage: Not every workplace injury requires visits to the ER. Often, a lot of minor cases of injuries that could have been treated with first aid end up in the ER. A doctor triage service can help you decide which ones can be handled with first aid onsite and which ones are more serious. With remote services especially, you can ensure immediate medical attention for the injured employee.
Licensed and experienced occupational physicians assess injuries via video calls and share specific treatment instructions. They also prescribe medications if required. This way, you can reduce unnecessary hospital visits as well as prevent avoidable Occupational Safety and Health Administration (OSHA) recordables.
When every single incident is not automatically recorded, your actual incurred losses stay low, this helps keep your EMR under control. - Facilitate Fast and Efficient Return-to-Work: Put a proper plan in place, so you can help injured employees reintegrate into the workplace at the earliest. Work closely with employees and healthcare providers to track recovery and ensure a faster return to work.
Triage doctors also monitor patients throughout and also lend moral support, which helps them heal fast. Also, when the employee resumes work, assign light duties initially to steer clear of re-injuries.
The faster an injured worker gets back to their job, the fewer will be your lost-time claims. By ensuring most claims are only-medical, you can minimize primary losses and your EMR. Lower absenteeism also bodes well for your operational continuity. - Don’t Delay Claim Reporting: While experience modification rates are estimated every year, the information used involves policy periods covering 4 years. This means the experience period (duration for which an employee’s compensation claims data is assessed) can span multiple years. The longer it is, the greater the impact on your EMR. Hence, report and manage claims promptly. Also, make sure minor injuries don’t aggravate with time or lead to hospitalization and too many days away from work. Without delay, address the issue with remote triage led by doctors.
- Leverage Experience Rating Adjustment: If your state has this particular rule in place, for medical-only claims, you might receive a 70% discount on actual incurred losses. However, confirm with your insurance provider or rating bureau before making the most of this rule.
- Net Deductible: In some states, you can exclude the deductible amount from the total claim cost, so your actual incurred losses are lower than usual. For instance, if $7,000 is your claim cost and $5,000 is the deductible, $2,000 is the actual loss.
- Study Trends: Trend analysis is especially vital if frequent incidents are driving up your experience modification rate due to safety incidents. Are the same work activities leading to repeated injuries? Check if the same body parts are being affected as well. This will help you detect gaps in the safety framework and make necessary changes.
In Conclusion
By now, you have seen that when it comes to workers compensation EMR calculations, frequent minor injuries can cost you more than one big one. That is because every claim – no matter how small – will drive up your e-mod rate, and with it, your insurance premiums.
Remember that your experience modification rate is not just a number – it’s a direct reflection of your company’s safety performance. Lowering it, will need consistent efforts, including a strong injury prevention program, early reporting, smart return-to-work programs, and access to a good remote triage service.
At Work Partners, we help business owners reduce the frequency of injury claims lower through by offering a more efficient management of injuries through our remote doctor-led triage services. Our approach reduces the need to visit the ER for minor injuries, prevents minor accidents from becoming OSHA recordables, and keeps the EMR in check, especially if you are operating on a small scale. In other words, you don’t need to stress about regulatory fines, high premiums, or sizable workers’ comp. To learn more about how we help in controlling the e-mod rate, get in touch today. Or if you need us to promptly tackle injuries, give a ring on (800) 359-5020. We are easy to reach on (651) 323-8654 and at info@workpartnersusa.com if there’s something else on your mind.
