An EMR or experience modification rating (also called a XMOD rating or factor) is used to price workers’ compensation insurance premiums. Think of it like your credit score or car driving history, where third parties consider your history as an indication of future risk. In construction, insurance companies use an organization’s EMR to gauge the past cost of injuries and future chances of risk.
Your EMR is based on actual insurance and workers’ compensation claims that have been reported to the National Council on Compensation Insurance (NCCI) over the course of the last five years, although the agency only uses claims information from three years prior. If your policy renews on January 1, 2021, for example, then the calculating agency will look at claims from 2017, 2018, and 2019. In addition, each individual claim is analyzed using a highly detailed EMR worksheet that weighs factors including type of incident and monetary value of claims paid out.
Some other modifiers that can affect your EMR include the size of your payroll, which can translate to a higher EMR for smaller contractors simply because of the size of their workforce.
Ultimately, your EMR is a numeric representation of your business’s claims history and safety record as compared to other businesses in the same industry, within the same state. For example, a roofing contractor in Illinois will be compared to other roofing contractors in Illinois.
Simple, right? All in all, much like any insurance factor, it basically states one of three things:
- This company is riskier than average (EMR > 1.0)
- This company is no more or no less risky than average (EMR = 1.0)
- This company is safer than average (EMR < 1.0)
Understanding and lowering your EMR is critical for organizations looking to reduce insurance costs and even gain more bids on work. Why? A company with an EMR of 1.25 will pay 25% higher premiums than the average company does, and a company with 0.80 will pay 20% less per dollar than average.
© Copyright 2020. All rights reserved. This content is strictly for informational purposes and although experts have prepared it, the reader should not substitute this information for professional insurance advice. If you have any questions, please consult your insurance professional before acting on any information presented. Read more.
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