What Does Experience Modification Rate (EMR) Mean?
The experience modification rate (EMR) is a tool used by the U.S. insurance industry to adjust an employer’s workers’ compensation insurance premium based on the employer’s pre-existing claims history.
The EMR provides a numeric representation of how a particular business’s claims history compares to other businesses in the same industry and state.
Safeopedia Explains Experience Modification Rate (EMR)
Companies with an average number of claims have an EMR of 1.0. Companies that are riskier than average have an EMR greater than 1.0, and companies that are safer than average have an EMR less than 1.0.
EMR calculations are based on insurance claims data, not Bureau of Labor Statistics data, and they are calculated by an accredited ratings bureau. Most states use the National Council on Compensation Insurance (NCCI) to calculate ratings. However, four states have completely independent ratings bureaus, and seven states have partially independent ratings bureaus that share data with the NCCI.
An EMR is a tool used by the insurance agency to effectively differentiate between the safety records of comparable companies. They provide a penalty to employers with a poor safety record and reward those with above-average safety histories. EMRs are calculated by dividing a firm’s actual worker’s compensation claims due to health and safety incidents by the claims expected from a firm in the same industry and state. The rate functions as a direct multiplier for a firm’s expected premium, so a firm with an EMR of 1.25 is paying 25% more than a firm with an EMR of 1.0.
A firm’s EMR is based on a review of its claims history over the three policy years before the current policy year. For example, if a firm’s EMR is evaluated during a policy year extending from January 1, 2018 to December 31, 2019, its rating would be based on its claims record extending from January 2015 to December 2017.
EMRs are a mandatory part of the insurance industry and cannot be ignored or waived by individual insurers. As a result, a firm’s EMR functions as a concise snapshot of its recent safety record.