I can’t count the number of times I’ve heard prospects say “We already have a credit on our WC policy” or “We don’t have a surcharge on our policy.” What does this mean? I can only ascribe these statements to clients’ misunderstanding—or complete unfamiliarity—of their experience modification rating (EMR).
EMR is a factor on all WC policies for companies that have been in business for at least 2 consecutive years or if their base premium exceeds a minimum set by its state. Your EMR is calculated 6 months after the expiration of each policy period and is predicated on information from your audited payrolls and paid and reserved medical and indemnity claims for a 3-year period, not counting the most recent policy year. This factor takes into account your actual claims versus the claims that are expected for a business in the same classification.
The complex method for calculating your EMR is a subject that I will cover in future blogs. The bottom line is that your EMR is a factor on your WC policy that either helps or hurts you financially. If you have good loss control and injury management protocols in place, your EMR will benefit you by discounting your WC premium. Conversely, if you have a poor claims management record, your EMR will be a detriment, resulting in a surcharge on your premium.
Here is an example of how this works: Let’s say your annual WC premium is $100,000 and your EMR is a 1.30. To calculate the impact on your policy, multiply the EMR of 1.30 by $100,000. The result is an adjusted final premium of $130,000. In short, you are hit with a $30,000 penalty for your poor claims experience.
So where is this savings that is locked up in your policy?
Every business has a minimum EMR. This is calculated separately for every business and represents what your EMR would be if you had no losses. In this scenario, let’s say your same business (the one with the 1.30 EMR) has a minimum EMR of .60. This means that if it had no losses, with a premium of $100,000, your adjusted final premium would be $60,000 ($100,000 x .60 = $60,000).
So for this business scenario, the potential untapped savings within the policy is $60,000. In short, the total savings realized by moving from a 1.30 EMR to a .60 EMR would be $90,000. With the proper assessment and a strategic plan in place, these kinds of results are achievable.