What is an EMR and why is it important?
The National Council of Compensation Insurance (NCCI) calculates the Experience Modification Rate (EMR) that is used in pricing your Workers Compensation insurance coverage. The EMR is a calculated value that adjusts your premiums by factoring in the experience of your workers compensation program. The neutral value is 1.0. If your experience is below the average for your class of business, the EMR will rise above 1.0 and that debit factor will be applied to your premium. If your experience is better than average, you will get an EMR less than 1.0 and that will apply a credit to your workers compensation premium.
Who uses this?
The EMR is used by the insurance carriers as part of their pricing and risk selection process. Another use of the EMR is by firms and individuals soliciting bids for services. Some have determined that an EMR over 1.0 is an adverse indicator of safety and will not accept bids from those companies. While NCCI has published articles that discourage this practice, it is still used by many people as a ”third party” indicator.
How is this number created?
The EMR uses three years of data and does not use the most current full year data. So, it is a lagging indicator of your experience.
The number is based on the class codes used to report your payroll to the insurer and the payroll associated with those codes. Each class code has a unique expected loss rate, and this factor generates the amount of loss dollars used in calculations.
The expected loss dollars are compared to the actual losses that were reported to NCCI by the insurance carrier.
Losses are adjusted based on several factors. There is a state specific cap on loss size to blunt the impact of any single severe loss. In most states this is $250,000. The loss is then split into two layers. The primary layer is all dollars up to $17,500 and the balance is considered an excess loss. This function separates risks with frequent small claims from a risk with a single large claim.
Losses can be further adjusted if they are medical only claims, no lost time payments were made. In this case, the amount of the loss is reduced by 70% The reduction is applied to both the primary and excess loss layers.
After applying statistical factors to normalize the numbers, a ratio of expected to incurred losses is determined and your EMR emerges.
This simplifies a complex series of calculations but conveys the basics of the process.
The Driehaus Difference
We understand this unique process and can help you develop strategies to manage your EMR. Our risk management skills can help you control costs and have the EMR that accurately reflects your experience. Call us at 513-977-6860 or visit our website www.driehausins.com to review our products and services and to contact us.