Some lines of work are riskier than others, which is why workers’ compensation plans charge variable premiums. The premium is influenced by the Experience Modification Rating, or EMR, which divides the actual cost of your workers’ compensation claims by the expected cost for your business. Industries that carry a greater risk of losses have a higher expected cost for workers’ compensation claims, while anticipated losses are smaller for low-risk trades. Using the EMR for workers’ comp premium determination spreads costs a little more equitably.
An average EMR is 1.0. Anything above that will lead to higher premiums, while anything below should lower insurance costs. Since the EMR is calculated using the most recent 3 years of data, it can increase or decrease depending on reported losses. This is good news for companies that are dissatisfied with their EMR because their rate can decrease over time, leading to lower premiums. On the flip side, a spike in workers’ compensation claims will eventually raise the EMR, increasing insurance costs.
Knowing a company’s EMR for workers’ comp policies helps in future expense planning, and also provides an incentive to create a safer work environment. An experienced insurance broker can help your business calculate its EMR and select its workers’ compensation plan that meets its needs.