How to Calculate EMR for Workers’ Comp

The Experience Modification Rate, or EMR, is a numerical factor used in workers’ compensation insurance to adjust a company’s premium based on its past claims history. This rate directly reflects a business’s safety performance compared to others in its industry. A favorable EMR can lead to significant cost savings on workers’ compensation premiums, while an unfavorable one can substantially increase them. Understanding EMR calculation helps businesses manage insurance costs and encourages workplace safety.

Key Data for EMR Calculation

Accurate data collection is essential for EMR calculation, ensuring the rate reflects a company’s risk profile. The primary data points cover an “experience period” of the three most recently completed policy years, excluding the most recent, allowing claims to mature.

A primary data element is payroll broken down by classification code. Classification codes, established by the National Council on Compensation Insurance (NCCI) or state-specific rating bureaus, categorize employees by work performed and associated risk. Businesses must maintain payroll records to accurately assign wages to these codes, as this directly influences expected loss calculation.

Actual incurred losses from workers’ compensation claims are another data point. These losses encompass medical costs, indemnity payments for lost wages, and reserves for open claims. While the full incurred loss amount is collected, these losses are later differentiated into “primary” and “excess” components for calculation. The accuracy of this claims history data is essential for a correct EMR.

Understanding the EMR Calculation Components

Beyond raw payroll and loss data, specific factors and multipliers, published by workers’ compensation rating bureaus like NCCI, are applied in the EMR formula. These components standardize the calculation, ensuring a company’s experience is compared against relevant benchmarks.

The Expected Loss Rate (ELR) represents anticipated losses per $100 of payroll for a classification code. NCCI or independent state rating bureaus publish these rates, essential for determining a company’s “expected losses.” Expected losses are calculated by multiplying the ELR by the company’s payroll for each classification code, divided by 100, representing typical losses for an average company of similar size and industry.

Splitting actual losses into primary and excess portions is important. A “split point” divides each claim’s total incurred loss. The amount of a claim up to the split point is a primary loss, while any amount exceeding it is an excess loss. This distinction gives greater weight to the frequency of claims (primary losses) over the severity of a single, large claim (excess losses) in the EMR calculation.

Two stability factors, Ballast (B) and Weighting Value (W), are incorporated into the formula. Ballast adds stability, preventing minor loss fluctuations from causing drastic EMR changes. The Weighting Value reflects the credibility of a company’s experience; larger companies typically have more credible loss experience, so their actual losses carry more weight. These values are published in tables by rating bureaus and vary based on employer size.

Step-by-Step EMR Calculation

The calculation of the Experience Modification Rate involves a formula that integrates collected data and established components. The general formula for EMR is often expressed as: (Actual Primary Losses + Ballast + Weighting Value Actual Excess Losses) / (Expected Primary Losses + Ballast + Weighting Value Expected Excess Losses). This formula compares a company’s actual loss experience to its expected loss experience.

To illustrate, consider a hypothetical example:

• Calculate Expected Primary and Excess Losses: Using the payroll for each classification code and the Expected Loss Rates (ELRs) and Discount Ratios (D-Ratios) from the rating bureau, determine the total expected losses for the experience period. Then, apply the D-Ratio to find the expected primary losses, and subtract this from the total expected losses to get the expected excess losses.
• Determine Actual Primary and Excess Losses: For each individual claim, identify the incurred loss amount. Apply the split point to divide each claim into its primary and excess components. For instance, if the split point is $18,500, a $30,000 claim would have $18,500 in primary losses and $11,500 in excess losses. Sum these primary and excess amounts across all claims in the experience period to get the total actual primary losses and total actual excess losses.
• Apply Ballast and Weighting Values: Locate the appropriate Ballast (B) and Weighting Value (W) from the rating bureau’s tables, which are determined based on the company’s size and expected losses.
• Compute the EMR: Plug all these calculated and identified values into the EMR formula. For example, if a company had $50,000 in Actual Primary Losses, $20,000 in Actual Excess Losses, $60,000 in Expected Primary Losses, $25,000 in Expected Excess Losses, a Ballast (B) of $5,000, and a Weighting Value (W) of 0.3:
  EMR = ($50,000 + $5,000 + 0.3 $20,000) / ($60,000 + $5,000 + 0.3 $25,000)
  EMR = ($55,000 + $6,000) / ($65,000 + $7,500)
  EMR = $61,000 / $72,500
  EMR ≈ 0.84.

The resulting EMR signifies a company’s workers’ compensation risk profile. An EMR of 1.0 indicates an average loss experience for the industry. An EMR below 1.0, like 0.84 in the example, suggests a better-than-average safety record and results in a premium credit or reduction. Conversely, an EMR above 1.0 indicates a worse-than-average loss experience, leading to a premium debit or increase. This calculated EMR is then directly applied as a multiplier to the manual premium to determine the final premium.