The experience modification rating (EMR) plays an important role in determining how much a construction company will pay for workers’ compensation insurance. And given how expensive insurance is for construction, it’s a good idea to understand how the EMR score is calculated. After all, it’s difficult to know how to improve your EMR score unless you know what goes into its calculation.
The point of an EMR score is to help insurers predict how large a risk you are for future losses by analyzing your loss history. It’s used for all kinds of businesses, but it is only for those whose premiums would be greater than $5,000 annually. Of course, there’s no construction firm that will pay a premium that low, so for you, it matters.
At the start of the evaluation, you begin with a score of 1. That’s the baseline. If the analysis shows your risk is low, your score goes down. If it’s high, it goes up. And that’s important because insurers will multiply the manual premium (which is your annual payroll multiplied by the workers compensation rate per $100) by your EMR to determine how much you’ll pay. For example, if your EMR is 0.8, and the base rate for workers’ comp insurance is $100,000, you’d pay $80,000 (100,000 x 0.8.). On the other hand, if your EMR is 1.5, you’d pay $150,000.
So, let’s dive into how the EMR is calculated. It’s pretty complicated. Let’s break it down.
First, we’ll go through the factors they use in the calculation:
- Gross payroll figure for the most recent 12-month fiscal year
- The job classification rate, which is typically from the National Council on Compensation Insurance (NCCI), but some states have their own systems
- Actual primary loss, which is the sum of all claims less than $17,000
- Actual excess loss, which is the sum of claims above $17,000, but it’s discounted. In this way, companies with many small claims penalized more than companies that only have one or two large ones
- Actual loss, which is the actual primary loss and the actual excess loss added together.
- Expected primary loss. To calculate this, multiply your payroll by your expected loss rate (ELR), which is determined by NCCI or your state agency, depending on your location.
- Expected primary loss: This future is the expected loss multiplied by the D-ratio (also known as the “discount ratio”). The D-ratio changes from year to year, and, like the ELR, is determined by NCCI or your state.
- Expected excess loss: Take your expected loss and then subtract the actual primary loss.
Got all that? Ok, almost there. We’ve got two big figures to determine before we get your EMR: the actual rate and the expected rate.
- Actual rate: Determine this by multiplying the sum of the actual primary loss and the actual excess lost by the expected excess loss.
- Expected rate: Multiply the sum of the actual excess loss and the actual primary loss by the expected excess loss.
Once you have these last two figures, calculating your EMR is easy: divide the actual rate by the expected rate.
In future posts, we’ll go into more detail about specific ways in which you can push your EMR as far below 1 as possible, but a good primer is our earlier blog post, Lower Your EMR Score By Improving Safety Onboarding For Subcontractors. But the short version is that you need to improve your safety record.
Ensuring that your contractors are receiving high-quality, consistent safety onboarding is an important piece of the EMR puzzle, and GoContractor can help. If you’re ready to learn how top construction companies are using GoContractor to onboard workers across projects of all sizes, reach out today to schedule a free demo.
