Frequently Asked Questions About
Experience Modification Rate

A good Experience Modification Rate is generally considered anything below a 1.00. When you are below a 1.00 you start received discounts on your workers compensation insurance premiums. The farther below a 1.00 the greater the discount; .95 = 5% discount, .80 = 20% discount, etc. ​ How low your Experience Modification Rate can improve is limited by something called your Minimum Mod (what your Experience Modification Rate would be with zero claims). ​ Another consideration is whether or not you are in an industry, like construction, where an Experience Modification Rate above a 1.00, disqualifies you from bidding. So, any Experience Modification Rate below a 1.00 is very good as it opens doors to earn revenue.

An Experience Modification Rate is calculated by dividing your Actual Work Comp Losses by Expected Work Comp Losses. So, if your actual losses are, say, $46,924 and your expected losses were $50,081, your Experience Modification Rate would be .94 (46,924/50,081 = .94). Calculating actual losses is easy. You just get those figures from your loss run report. However, how the rating bureau determines your expected losses is a much more complicated actuarial exercise. You can learn more in the How Is An Experience Modification Rate Calculated - Expected Losses section.

Between 2.0 and 3.0. In 20 years of reviewing Experience Modification Rates for clients we have never seen an Experience Modification Rate of 3.00 or higher. We have heard anecdotes that we can't verify, but we've never seen it. The Experience Rating Algorithm has safeguards to keep and Experience Modification Rate from rising to, say, a 10.00. That would not just dramatically increase but also put employers out of business. So, for example, one safeguard is the "state max." It's different in every state but the state max limits the amount of a claim that counts against (raises) your Experience Modification Rate. $400,000 is close to most maximums. So, if you had a $1 million claim, only the first $400K would count against your Experience Modification Rate while the remaining $600K would not. If you're Experience Modification Rate is above a 1.00, don't despair. Review our post about high Experience Modification Ratings and let us know if we can help you.

An Experience Modification Rate is a measurement of how safe your company is compared to other, similar businesses. It provides an objective metric for you, your insurance company, clients, etc. to determine how safe your work environment is and how likely your organization is to have frequent and/or severe workers' compensation claims. Here's some additional information about the critical nature of a business' Experience Modification Rate. Very simply though, the average Experience Modification Rate is a 1.00. Half of all business should be above a 1.00 (this is worse than average) while the other half below a 1.00 (better than average).

The difference between your Experience Modification Rate multiplied by your Standard Premium and your Minimum Experience Modification Rate multiplied by your Standard Premium. This difference is how much money you are paying your insurance company that is within your control to reduce. A more detailed EMR example can be found on the What Is A Good Experience Modification Rate page.

There are numerous strategies to reduce your Experience Modification Rate. We like to group them into near and longer term strategies. Immediate reductions of your current and past Experience Modification Rates, however, can only be accomplished through and independent audit to uncover data reporting errors, misapplication of state and manual rules, etc. Immediate reductions are common through this process. Near term solutions to reduce your upcoming Experience Modification Ratings can include Return To Work programs, Injury Triage Programs, and Reserve Auditing. Longer term solution involve safety procedures, utilization of safety devices, claims handling, etc. Additionally, there can be some "tricks" (like "buying down" your Experience Modification Rate) depend on which states in which you do business.

The Experience Modification Rate and the Total Recordable Incident Rate (TRIR) are both safety metrics. They provide an objective measurement of an organization's safety performance. However, there are many differences between the two. EMR gives you a long-term perspective while a company's current TRIR is a reflection of the past year. There are many more differences between both EMR and TRIR and you can use them for different purposes or in conjunction with one another. For more information see our post on TRIR vs EMR.

NCCI stands for the National Council on Compensation Insurance, which is a U.S.-based organization that provides data, analytics, and actuarial services related to workers' compensation insurance. ​ The NCCI is responsible for developing and maintaining the Experience Modification Rating (EMR) system, which is used by insurance companies to determine workers' compensation premiums for individual employers. The EMR is a numerical rating that is calculated based on an employer's historical workers' compensation claims experience compared to other employers in the same industry. The EMR takes into account factors such as the frequency and severity of claims, as well as the size of the employer's payroll. ​ The NCCI collects and analyzes data on workers' compensation claims and other factors that affect the cost of insurance, such as medical costs and legal expenses. This information is used to develop and update the EMR system, which helps insurance companies to more accurately price workers' compensation insurance policies for individual employers based on their specific risk profile. ​ Overall, the NCCI plays an important role in the workers' compensation insurance industry by providing valuable data and analytical services that help ensure fair and accurate pricing of insurance policies for employers.

Workers' compensation claim reserves are funds that insurance companies set aside to cover the costs of future workers' compensation claims. These reserves are calculated based on the expected cost of each claim, including medical expenses, lost wages, and any other expenses related to the claim. Reserves only impact open, ongoing claims. And, the reserves for open claims are included in the calculation of the employer's total claims costs, which is used to determine the Experience Modification Rate. If an employer has a large number of open claims with high reserves, it will increase the employer's claims costs and result in a higher Experience Modification Rate. Conversely, if an employer has a low number of open claims with low reserves, it will decrease the employer's claims costs and likely result in a lower Experience Modification Rating. Employers should work to manage their claim reserves and minimize the number and severity of workers' compensation claims to improve their Experience Modification Rate and reduce their insurance costs. See our blog posts about Reserve Auditing and "Twilight Zone Phone Calls" to learn more about managing reserve values.

Claims will remain in your EMR and negatively effect your Experience Modification Rate for 3 years. Think of the experience period for claims in terms of policy years. A claim that occurs during your current policy year will not show up in your next Experience Modification Rating, but, rather, the following. And, it will remain in your Experience Modification Rate calculation for 3 years.