What is an Experience Mod?
An experience modification rating (EMR) will show you how your company's workers' compensation claims experience compares to other companies in the same industry with a similar size. The majority of companies with annual premiums exceeding $3,000 have an EMR. An experience mod of 1.0 means your company is at the industry average. An experience mod of 0.70 would mean your company is 30% better than average while an experience mod of 1.30 means your company is 30% worse than average.
A basic analysis of EMR is to take your actual claims and divide by your expected claims.
How is Experience Modification Rate Calculated?
Insurance carriers report your information of the previous five years to the National Council on Compensation Insurance (NCCI). This information generally includes your payrolls, class code, and losses. Some states have their own agencies that calculate insurance compensation, but these are the exception. Idaho is an NCCI state and requires most employers to have workers' compensation coverage. Click here for more detailed Idaho employer information. To calculate your EMR, these agencies use data from the previous three years ending one year prior to the effective date of the rating period. So, to calculate your 2018 rating an agency would use your data from 2014–2016.
What Categories Drive the Cost of Worker's Compensation?
There are a few key metrics that will help you monitor your experience mod and associated workers' compensation costs.
Keep an eye on:
- Paid Losses - any money that has been spent on a claim
- Reserved - any money that has been set aside (outstanding) for your future payments
- Incurred Losses - these include both paid and reserved amounts
How do Ownership Changes Affect Workers' Compensation?
In most states, including Idaho, your experience mod rating is affected if your business buys, sells, or transfers assets. The past workers' comp history of any company remains in place regardless of who owns the company. Any ownership changes need to be reported to the NCCI. Reach out to your insurance agent to make modifications to your policy, or to see how purchasing an existing business can affect your experience mod.
If a change in ownership occurs, employers must fill out form ERM-14. It contains a table of transactions, ability to enter the risk's information, and the percentage of ownership. The types of transactions are:
- A change in legal status and/or name
- Sale, transfer, or conveyance of all or a portion of an entity’s ownership interest
- Sale, transfer, or conveyance of an entity’s physical assets to another entity that takes over its operations
- Merger or consolidation
- Formation of a new entity that acts as, or in effect is, a successor to another entity
- An irrevocable trust or receiver, established either voluntarily or by court mandate
- Determination of combinability of separate entities
