How to Understand Experience Modification

Learn how experience modification rates affect your workers' comp premiums and what the numbers mean for your business costs.

1. Calculate your current premium impact. Find your experience modification rate (EMR) on your workers' comp policy declarations page. Multiply your base premium by this number to see your actual cost. An EMR of 1.15 means you pay 15% more than standard rates; 0.85 means 15% less.
2. Review the three-year lookback period. Your EMR uses claim data from years 2, 3, and 4 prior to the current policy period. The most recent year is excluded to allow claims to develop. Track your current year's incidents since they'll affect your rate in two years.
3. Analyze frequency versus severity weighting. The formula penalizes claim frequency more than severity for smaller claims. Multiple $5,000 claims hurt your rate more than one $15,000 claim. Focus on preventing small, frequent injuries rather than just catastrophic events.
4. Monitor your payroll classification accuracy. EMR calculations use expected losses based on your industry classification codes and payroll. Verify your class codes are correct during audits. Misclassified payroll skews your expected losses and can artificially inflate your modification rate.
5. Request an experience rating worksheet. Get the detailed worksheet from your carrier or state rating bureau annually. Review actual versus expected losses, credibility factors, and claim details. Challenge any errors immediately since corrections can take 6-12 months to process.
6. Project future rate changes. Estimate next year's EMR by tracking current claims against your expected losses. Each $10,000 in new claims typically increases your EMR by 0.05-0.15 points, depending on your payroll size and credibility factor.