Insurance companies use an Experience Modification Rate (EMR) formula to calculate your workers' compensation premium based on the cost of past claims and the likelihood of future accidents. The higher your EMR, the higher your premium — and the converse is also true.
How the formula works
- To set a base premium, the carrier divides your payroll in each job classification by 100, and then by a class rate set by the National Council on Compensation Insurance that reflects the risk of that classification. For example, structural ironworkers have a much higher class rate than receptionists because the injury risk differs.
- The carrier compares your claims history over the past policy periods to similar firms in your industry. The formula factors in the ratio between expected industry losses and the losses you actually incurred, and it considers both frequency and severity of claims. The method penalizes many smaller, frequent losses more than a single large, infrequent loss.
- The result is the EMR, which the carrier multiplies against the manual premium to determine your workers' compensation premium for the next policy period.
If your business has an EMR of 1.0, your premium remains unchanged. A rating of 1.2 means you may pay roughly 20% more than a competitor with an EMR of 1.0, while an EMR of 0.8 gives you a competitive advantage through lower relative premiums.
High EMRs can significantly increase cost and affect competitiveness; for guidance on handling elevated mod factors, see High Mod Workers' Compensation.
A comprehensive safety program that reduces workplace hazards and injuries is the most effective way to lower your EMR. For information on alternative policy features and how losses are allocated, see Split Point (Workers' Compensation).
If you want help reviewing your policy options or implementing loss-control measures, talk to an agent who can analyze your situation and recommend practical steps.
Frequently Asked Questions
How often is my EMR updated?
EMRs are typically recalculated annually based on recent payroll and claim data reported to your state or rating bureau.
Does one claim always raise my EMR a lot?
Not necessarily — the formula weighs both frequency and severity, so a single large claim may affect the EMR less than many smaller claims.
What steps actually reduce my EMR?
Reducing claim frequency through safety programs, return-to-work policies, and claims management usually has the most impact on lowering EMR over time.
Can I challenge incorrect claims on my experience modification?
Yes; you can work with your carrier or rating bureau to correct clerical errors or medical-only claims that were wrongly assigned to your account.