What do you know about EMR? For some, the Experience Modifier Rate (EMR) is old news – but for those recently introduced to the industry, this term is an important one to know. The EMR is a tool used to gauge the past cost of injuries and the projected future chance of risk compared to similar operations within your state. It is clear how that information might benefit your insurance carrier, but you too can benefit from knowing your contractor’s EMR.
Sound complicated? Let’s break it down. For you, the lower your EMR, the lower your Workers’ Compensation premiums. This translates to a lower cost of operation and more money for investment, allowing you to hire more staff and increase inventory and equipment.
The same principle applies to your contractor(s). Because the EMR weighs past cost and future risk, a lower EMR means there is a lower risk of accident or injury on your location(s) by the contractor. This allows you to strategically compare contractors bidding on contracts – and it’s a tool you should take advantage of!
Some contracts require EMRs to be 1.0 or lower. There are multiple factors involved in this calculation: Payroll, Job Classification Rate (issued by the National Council of Compensation Insurance), Discounts and Assessments, Actual Loss, Primary Loss, etc. It is enough to make your head spin! However, these calculations are designed to help predict future loss.
Here is a quick example of the impact of EMR on insurance premiums. The EMR, or Mod, is a multiplier. Let’s say Company A has an unmodified premium of $100,000. They have an EMR of .75 (which is great). We take the $100,000 and multiply it by 0.75, to total $75,000. That’s a cost savings of $25K! If we take that same premium and multiply it by a Company B’s EMR of 1.25, we see a much higher premium of $125,000. This translates to a difference of $50K! This makes Company A far more competitive with others in its area. Unfortunately, a change from 0.75 to 1.25 can happen rather quickly, especially with a smaller company. One major accident or even several smaller accidents can wreak havoc on this rate, further emphasizing the importance of a strong safety program.
An EMR of 1.00 or lower is crucial in hiring a contractor or renewing a contract. Not only are they paying less in Workers’ Comp premiums, but they have had fewer accidents in the past three to five years – a reliable indicator of whom you should hire. Note: There is nothing wrong with working with your contractors to lower their EMR!
