What is an experience modification rate?

A factor based on past claims history that adjusts premiums up or down compared to industry average.

The experience modification rate, often abbreviated as EMR or MOD rate, is a number used by insurance companies to gauge both the past cost of injuries and future chances of risk. It's a critical component in determining a business's workers' compensation premium. Essentially, it's a way of assessing a company's safety record compared to similar businesses in the same industry. An EMR of 1.0 is considered the industry average. If a business has fewer or less severe claims than other businesses in its industry, its EMR will be less than 1.0, which will reduce its workers' comp premium. Conversely, if it has more frequent or severe claims, its EMR will be higher than 1.0, resulting in higher premiums. This system incentivizes companies to maintain safe working environments and reduce workplace injuries.

Imagine you own a small construction company. Over the past few years, your company has maintained an excellent safety record, resulting in fewer accidents and insurance claims than similar companies in your field. Due to this stellar safety performance, your insurance provider evaluates your company with an EMR of 0.85. This rate indicates that your company is safer compared to others, so you pay less in workers' compensation premiums, allowing you to allocate those savings to other parts of your business.

As a business owner, it's important to foster a culture of safety within your organization. By regularly training employees on safe work practices and addressing potential hazards quickly, you can reduce workplace accidents and keep your claims low. This proactive approach not only helps protect your employees but can also lower your EMR, ultimately saving money on insurance premiums. Consider setting up regular safety audits and incentivizing your staff to follow best safety practices.