Insurance providers use experience rating to evaluate businesses and consequently adjust the premiums they are required to pay. Experience rating reflects previous loss experiences of a business and gets based on the presumption that future loss experiences can be predicted by historical loss experiences. Basically what this means is that future losses are expected to be more or less similar to losses incurred in the past. Experience Modification Rate or EMR has a strong impact on businesses. Insurance companies use EMR to determine the likelihood of future risk as well as the cost of past injuries. Generally, businesses pay less compensation insurance premiums if their EMR is also low. 1.0 is considered the EMR industry average, with figures below this considered low and anything above it high. If an insurance provider pays worker compensation claim for a business, there is a great likelihood that it EMR is greater than 1.0.
Worker compensation premiums are raised by insurance providers for businesses with high experience ratings, to reduce the insurance company’s risk. While increased EMR stick with a business for three years before they can be changed, the good news is they can still be lowered. Businesses can successfully reduce their EMR by implementing effective safety programs aimed at preventing injuries and eliminating hazards. Whenever a business has no injuries, there are no claims to be made. The situation at the workplace however is quite different, since injuries can happen any time, therefore to prevent the EMR from increasing further, proper management and response are a must. To prevent EMR from getting out of control, it is necessary to have a plan for managing worker compensation claims and injuries.
Through experience rating, businesses have a financial incentive to minimise work-related injuries and losses perhaps through implementation of safety programs. Also, EMR encourages employers ensure that injured employees are returned to work as soon as possible. On the insurance providers’ side, experience rating makes sure that adequate premiums are collected to cover all the risks insured by different businesses. Businesses incapable of controlling EMR in-house can hire full-service safety companies to help them control their EMR and consequently reduce overall costs.
Particularly with regard to saving money and bidding for work, lower EMR could give businesses a competitive edge over other rivals in their industry. Construction owners and general contractors have realised how advantageous lower EMR numbers are, and usually prequalify companies with low EMR scores even before they assess any bids. Therefore, it would be rather unfortunate for businesses to miss out on money and opportunities due to high EMR.