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Experience Modification RateUnderstanding the EMR or “Mod Rate”

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Introduction to the Experience Modification Rate – The “Mod Rate”

The Definition: The comparison of the basis of

workers’ compensation premium (usually payroll) and losses (claims) developed by an employer during a policy period to employers within the same industry.

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What’s the “Mod” look like?

A 1.00 EMR indicates that your organization is on par with the average for other organizations within your industry.

Below a 1.00, your organization has a better claims history than other members of your industry.

A 1.01 and above, indicates that your mod rate is above the average for your industry.

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The insurance industry has evolved in how they determine a company’s rateWith

in job

class (clerical, service, etc. in

the sam

e industry)

Within industries(ex. Comparing tire manufacturers to

other tire manufacturers)

Within industry groups(ex. Construction – plumbing,

carpentry, etc.)

Across all industries(ex. Retail, construction, food service, etc.)

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Work Comp Code Classifications – An Example

WCC Total Payroll in Class

Per $100 of Payroll

Rate Per $100 of Payroll

Premium

8810 – Clerical

$40,000 $400 0.27 $ 108.00

8387 -Technician

$200,000 $2,000 4.31 $ 8,620.00

8742 -Sales

$75,000 $750 0.64 $ 480.00

TOTAL $ 9,208.00

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Why is the Mod Rate Important?

The mod rate is important to insurance companies because, generally, past experiences can be used to predict future losses.

When you have a good mod rate, you’ll realize a reduction in your insurance premiums.

Higher mod rates, mean you’ll pay more: this helps the industry collect appropriate premium to be able to pay claims.

Provides incentive to develop formal programs and keep workers safe.

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How is data used? To determine the mod rate:

3 Years of payroll and loss data Insurance companies submit this data to

organizations or state bureaus for compilation

Measurements of both Severity and Frequency of claims are reviewed

An ERA (Experience Rating Adjustment) is applied. This reduces impact of medical only claims.

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Frequency vs. Severity Frequency has a greater impact on

EMR Employer

# of Claims

Cost per claim

PrimaryLoss

Excess Loss

Employer A

1 $ 50,000 $15,000 $ 35,000

Employer B

5 $ 10,000 $50,000 $ - 0 -

The first $15,000 of a claim is referred to as a “primary loss” and has greater impact on the mod rate. Over $15,000 is “excess loss”.

Severity >

Frequency >

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Frequency vs. Severity – the rationale Any company can experience one

severe loss – or catastrophic claim. This is generally an unusual event. Excess loss values are high – but weighted less in EMR calculation.

Frequency is considered a better indicator of the future. A larger number of small claims typically means that a future claim is more likely.

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Three Companies Comparing the impact of mod rate on

premium

Company

Premium Due

Mod Rate

TotalPremium Note

A $100,000 .85 $85,000 Company A receives a $15,000 discount

B $100,000 1.00 $100,000 Company B pays the industry average

C $100,000 1.25 $125,000 Company C pays a 25% increase or penalty on their insurance

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What’s the Impact of Light Duty on our Mod? Returning an injured employee to work

immediately, and working with restrictions has benefits.

For Medical Only claims – only 30% of the primary claims loss is included in the experience rating calculation.

In other words, we get a 70% discount against our mod rate for a medical only claim.

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3 Years of Data – A Sample1st Report

1/1/2013 Rating2011 – 20122010 – 20112009 - 2010

2nd Report1/1/2014 Rating2012 - 20132011 - 20122010 - 2011

3rd Report1/1/2015 Rating2013 - 20142012 - 20132011 - 2012

Each year, the oldest year’s worth of data falls away – for better or worse.

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The Formula

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What an Experience Rating Sheet looks like…..

Belleroc’s current EMR is 1.17

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Customers and Our EMR

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Customers and Our EMR An EMR is like a credit history – it follows

a business. Future insurance companies require at

least 3 years of history Large customers and government

entities seeking sub-contractors who practice a safe working environment ask for EMR reports. Ex. DuPont won’t accept any sub-

contractor unless EMR is .99 and below.

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EMR and Supporting Documentation

In addition to the EMR report and extensive safety contractor agreements, customers will request: 3 Years worth of OSHA logs Full Company Safety Manual Training Sign-In Sheets

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Sample customer list

ABCDEFGHIJK……………………

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Company3 years

Of SafetyStatistics

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Company Safety Stats w/Questionnaire

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Verifying Customer’s Safety Compliance Customers now use online compliance

systems as clearing houses to collect and scrutinize our safety data. PICS/Avetta BROWZ ISNETWORLD

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PICS

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BROWZ

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BROWZ SAMPLE

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ISNetworldSAMPLE

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ISNetworld SAMPLE

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Industry Average is Always a 1.00 The average EMR for our industry will

always be 1.00. As the industry ages, and safer work

practices are developed, the statistics behind that 1.00 change.

Result: companies can’t do “business as usual” and expect to stay competitive as their competitors improve and lower that industry average.

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Conclusion We need to look at ways to reduce the EMR,

including: Safety initiatives – reducing severity & frequency

Training – Monthly Talks, certification Process improvement Behavior – rewards and accountability Inspections – Worksite, Job Site, VIR’s

Working with our occupational health clinics to keep injuries as non-recordable (first aid only visits)

Getting our employees back to work – offering light duty work