After employee classification codes and payroll, the Experience Modification Rating Factor (EMR) is the strongest driver of Workers’ Compensation premiums. Given that the EMR is calculated using historical data and a pre-set formula, some do not believe there is anything they can do to control this important variable. The purpose of this article is to provide you with the necessary information to exert control over your EMR, and as a result, your Workers’ Compensation insurance premiums.
As discussed in our previous article, your EMR is essentially the ratio of your actual losses vs. expected losses over a three year period (your most recent closed and audited policy terms). For EMRs effective 12/1/2020, payroll/claim data for the 12/1/2016-17, 12/1/2017-18, and 12/1/2018-19 policy periods would generally be used for the calculation; in practical terms, the soon-to-expire term will not impact your EMR for the upcoming renewal, but will factor into your EMR for the subsequent three years. The first step to controlling your EMR is to ensure it is calculated based on accurate data; namely payroll, classification codes and actual claim payments. The Workers’ Compensation Rating and Inspection Bureau of Massachusetts (WCRIBMA) generally publish EMR information well in advance of the effective date of the upcoming policy, providing your agent with the opportunity to catch and correct costly errors in its calculation.
Ultimately, your EMR is a reflection of your claims performance; so the key to controlling it lies mainly in the processes of (1) preventing claims and (2) managing claims in the unfortunate, but near certain, event that they arise.
First and foremost, the most desirable outcome would be to prevent claims from happening in the first place. To some extent, this is “out of one’s hands,” in that injuries often result from accidents—and they’re called accidents for a reason (they are unintentional). That said, there are many things that can be done to create a safety-oriented culture that helps toward the goal of avoiding claims where and when possible. A few very general ways that a company can work toward preventing claims are as follows:
- Develop a pre-employment screening process to ensure employees are medically and physically capable of the work demanded by the job. This should be done very carefully and with input from appropriate professionals, as one does not want to introduce any employment-related liability through this process; however, there’s no doubt it can be done both efficiently and effectively.
- Develop a safety program and ensure it is appropriately communicated to employees on a regular basis. This can and should be done in conjunction with your Workers’ Compensation insurance company’s loss control/risk management consultants, and/or potentially outside safety consulting personnel. Every company’s specific risk exposures are a little different, so while many points in a safety program may be general in nature, a lot of it is custom-tailored to specific needs.
- Work on your “safety culture,” and be sure to lead by example. If an employer does not clarify to employees that safety is a major priority, and continue to express that point, employees are less likely to keep it in mind! Another way to put this would be to ensure that the “tone at the top” is indicative of a safety-oriented culture, and that employees understand that safety is a major priority. It also doesn’t hurt to clarify that Workers’ Compensation claims harm the employer’s bottom line—sometimes, if employees don’t understand how WC claims work (and how WC insurance is priced), there will be a lack of understanding surrounding the negative impact (“insurance will pay for this” mentality). Additionally, one can incentivize positive safety-related behavior by incentivizing it via group safety goals and small group rewards based on positive safety performance.
All of that said, of course, not all claims can be avoided through preventative measures. As such, it’s important to be prepared to properly “manage” claims, in order to reduce their severity, in the instance that they occur. Following are several measures you can undertake, in coordination with your agent, to effectively manage claims:
- Report claims promptly and proactively. Work with your insurance carrier to ensure proper attention is devoted to the claim. Needless delays in the adjusting process only serve to exacerbate the severity of claims.
- Implement a Return to Work program. Maintaining the ability for injured employees to work with light duties has a two-fold impact on limiting the size of claims by (1) eliminating or reducing the amount of claim payments due to “lost time” and (2) providing additional motivation for the injured worker to take their physical therapy seriously so they can return to their regular duties.
- Monitor claim reserves (additional claim that may or may not be paid) periodically to ensure they are appropriate. Insurance companies place reserves on claims until they are closed, and these reserves are factored into EMR calculations.
- Pay attention to your Unit Statistical Date—the date your insurance carrier reports payroll and claim information to your state’s WC bureau or NCCI (depending on which is applicable) for the purpose of calculating your EMR. Per the previous note, claims still open on the Unit Statistical Date will be factored into the EMR equation using the reserved value. If the aforementioned claim closes between the Unit Statistical Date and effective date of the EMR, at a lower amount than the reserved value, the EMR can be corrected through the process of Aggravated Inequity. Some insurance carriers will file Aggravated Inequity corrections with the WC bureau automatically, following the aforementioned scenario, but in most cases, Aggravated Inequity is pursued via written request from the employer to the WC bureau or NCCI.
In short, proactively managing claims—rather than letting them simply run their course—provides you with the best opportunity to achieve the best possible outcomes for your employees and bottom line. Partnership with a competent agent is an essential step toward establishing a strategic approach to preventing and managing claims and exerting control over your EMR.
For more information regarding experience rating, please visit the following links:
- MA Only: https://www.wcribma.org/mass/ProgramOverview/ExperienceRatingPlan.aspx
- Multi-State: https://www.ncci.com/Articles/Documents/UW_ABC_Exp_Rating.pdf