An Experience Modification Rate (EMR) (also referred to as “Experience Modifier” or “Mod Rate”) is a numerical representation of a company's claims history and safety record compared to other businesses in the same industry, and which is used by insurers to adjust workers’ compensation premiums based on an employer’s claims history in comparison to the industry average. 

Key Takeaways: 

• The Experience Modification Rate (EMR) adjusts workers' compensation premiums based on an employer’s claims history relative to the industry average, incentivizing safety by reducing premiums for fewer claims and increasing them for frequent or severe claims.

• An EMR of 1.0 reflects the industry average, while an EMR below 1.0 leads to premium discounts, and an EMR above 1.0 results in higher premiums, with even small fluctuations significantly affecting costs.

• Employers can lower their EMR through comprehensive safety programs, effective claims management, and regular internal audits, which in turn reduces their workers’ compensation premiums over time.

How Is EMR Calculated?

EMR is calculated using a formula that compares an employer’s actual claims to what is expected for similar businesses in their industry. The formula looks like this:

EMR = Actual Claims / Expected Claims

• Actual Claims: This is the employer’s workers’ compensation claims history over a certain period (usually the past three years, for the reasons discussed below).
• Expected Claims: This figure represents the average number of claims for companies of similar size and type in the same industry.

An EMR of 1.0 indicates that the employer’s claims history matches the industry average. An EMR below 1.0 (such as 0.90) means the employer’s claims are lower than average, leading to a premium discount. Conversely, an EMR above 1.0 (such as 1.10) reflects a higher-than-average number of claims and results in a premium surcharge.

Note that the impact of claims also varies significantly across industries. High-risk sectors like construction, manufacturing, and healthcare often experience more frequent or severe injuries, which can lead to wider fluctuations in their EMR. For example, a construction company with an EMR of 1.25 would face a higher surcharge due to the elevated risks associated with their work, and industries with lower-risk profiles, such as office environments, tend to have more stable EMR scores with fewer dramatic adjustments.

Note that insurers calculate EMR using claims data from a three-year period, excluding the most recent policy year, to provide a balanced and accurate measure of an employer’s risk. The reason for this is that the three-year span smooths out fluctuations caused by one-off events or anomalies and reflects long-term risk more accurately, and excluding the most recent year accounts for the time it takes to settle claims, so that only resolved claims are included in the EMR calculation.

Impact of EMR on Workers' Compensation Premiums

EMR plays a critical role in determining workers' compensation premiums. Since premiums are directly tied to the level of risk an employer presents based on claims history, even a small change in EMR can significantly impact costs. For example, an EMR of 0.90 would result in a 10% reduction in workers' compensation premiums, meaning an employer who would typically pay $100,000 in annual premiums would only pay $90,000. By way of contrast, an EMR of 1.25 (25% above average) means the employer pays 25% more in premiums, so instead of $100,000, they would pay $125,000.

Managing and Improving Your EMR

Employers can influence and lower their EMR through proactive safety and claims management by: 

• Implementing Comprehensive Safety Programs: Employers should establish strong safety protocols, conduct regular safety training, and maintain a culture of safety awareness in the workplace. Fewer accidents lead to fewer claims, which directly lowers EMR.
• Managing Claims Effectively: Rapidly addressing workplace injuries by ensuring that employees receive the necessary medical care and return to work as soon as possible can help reduce the financial impact of claims. Return-to-work programs that offer light-duty positions can also minimize claim costs.
• Conducting Internal Audits: Regularly reviewing internal records and classification systems can prevent misclassifications and other errors that might inflate claims numbers. Employers should also engage with workers' compensation insurers to verify the accuracy of their claims data.

In short, by reducing the frequency and severity of claims, employers can gradually lower their EMR, leading to lower workers’ compensation premiums and a healthier bottom line.

Example: An employer in the construction industry with an EMR of 1.25, indicating a claims history 25% higher than the industry average, is currently paying $125,000 in annual workers’ compensation premiums. By implementing a safety program, reducing the number of claims, and improving return-to-work strategies, the employer is able to lower its EMR to 0.90 over the course of three years. As a result, the company’s workers’ compensation premium drops to $90,000, resulting in significant cost savings to the employer.