Workers’ compensation insurance is a crucial component of protecting employees in the event of work-related injuries or illnesses. It provides injured workers with medical benefits, wage replacement, and other necessary resources while safeguarding employers from costly lawsuits. Workers’ compensation premiums are largely based on how safe your organization is; the safer the workplace, the less likely they are to incur costly claims. To determine how safe your organization is, carriers rely on two tools: an experience modification rating (frequently shortened to EMR or E-mod) and a loss run report.
Calculating an E-Mod
In most states, the National Council on Compensation Insurance (NCCI) regulates workers’ compensation, including determining an organization’s E-mod. Keeping this calculation away from carriers and brokers ensures a neutral, data-centric approach to quantifying an organization’s safety. The NCCI looks at an organization’s claims, payroll, and industry to create an E-mod, which is often used as a snapshot of that organization’s commitment to safety. Here’s how it works:
- Every organization starts with an E-mod of 1. This reflects the average claim for that particular industry, comparing apples to apples. After all, an office environment will have a very different claims history than a construction site, and for good reason.
- The NCCI will then look at the last three years of claims history (not including the current policy year), taking into account the size of your payroll for scale. If your organization’s claims per employee are lower than the industry average, the E-mod goes down. If claims are above that average, the E-mod goes up.
- At renewal, the carrier multiplies your base premium by the E-mod, so your premium directly reflects your organization’s safety record.
A high E-mod can impact an organization beyond premiums. Many companies—especially in more hazardous industries—avoid doing business with companies whose E-mods are above a 1.
Lowering an E-Mod
With so much at stake, many employers are relieved to know that their E-mod is not entirely out of their hands. Employers can take a hands-on approach to reducing their E-mod with some simple steps:
- Put safety first. Maintain a safe work environment with frequent trainings, robust safety programs, and a strict adherence to safety guidelines.
- Utilize return-to-work programs. A well-constructed return-to-work plan centers on getting an employee back into their regular job as they recover, which often promotes a quicker recovery for the employee and lowers overall claim costs.
- Get involved in claims management. Take advantage of all the resources available to you and become actively involved in managing workers’ compensation claims. Develop strategies and procedures to prioritize efficient treatment plans and guard against fraud.
- Report claims promptly. The sooner an injury is reported, the sooner treatment can start. Early intervention is a critical component in the recovery process—and a swift recovery generally means lower claims.
- Analyze the data. Finding trends within your data may be the key to reducing your claims. Is there one particular department or location with a poor safety culture? Is there a certain type of hazard your employees need more training on?
Loss Runs
An E-mod takes three years of data to calculate, and even then, some small businesses may never qualify for an E-mod due to their size. In cases like this, carriers rely on the organization’s loss run. An insurance loss run is, in many ways, a more straightforward version of an E-mod. A loss run report gives a run-down of an organization’s claims, and while it looks three to five years back, it also takes open claims into account by using the total amount the carrier holds in reserve for those claims.
The impact of a loss run on your workers’ compensation premium is, in essence, the same as an E-mod. A loss run with few or no claims will result in a lower premium, while a loss run with many or especially high claims will cause the premium to go up. Carriers will use schedule credits/debits or adjust the rate to get the premium result they are looking for.
A loss run report can provide more valuable insight than an E-mod because it includes more detail, such as the details for each claim.
