What Is A Good EMR - Experience Modification Rate
Debit Mods, Credit Mods, and Minimum Mods
If you read the information on our Home Page, you now know what a debit mod is (above a 1.00) is as well as a credit mod (below a 1.00). Most business leaders are happy with a credit mod because they are not longer paying additional premium to their work comp insurance company. In fact, they are receiving a credit; or a premium reduction. In addition, businesses that have to submit Experience Modification Rates along with new business proposals are not disqualified from the bid process with a credit mod.
But, let's face it. A 1.00 is average. Half of businesses have an EMR above a 1.00 and half below. A 1.00 Experience Modification Rate is like being a C student.
What is the absolute best Experience Modification Rate you could have? What would be the equivalent of being a straight A honor student? Well, you can't get any better than have zero claims. The best Experience Modification Rate you can have is what that EMR would be if you eliminated all of the claims from your Experience Rating Worksheet; your Minimum Mod.
What Is Your Minimum Mod?
There is a short cut to calculate your minimum experience modification rate. Find your current experience rating worksheet and locate the Stabilizing Value and your Expected Total Claims value. In the example below you'll see that those figures are, respectively, $282,864 and $500,816.
To obtain your minimum mod divide the Stabilizing Value by the Expected Total Claims: $282,864 / $500,816 = .56
So, the customer's current mod is a .94 which is a pretty good EMR. However, if they had no claims their mod (minimum mod) would be a .56.
Also, hypothetically, if the customer with a .94 experience modification rate has $100,000 in "manual premium," you'd multiply that .94 by $100,000 to get the "modified premium" which would be $94,000. That .94 EMR affords the company a $6,000 discount.
If the company's minimum mod were instead applied to the $100,000 manual premium the modified premium would be $56,000. So, even though this company is doing a good job with claims, has a .94 EMR and is getting a $6,000 credit, the claims they have incurred are still costing this company $38,000 ($94,000 - $56,000)!
So, What Is A Good Mod?
There are many benefits to being just average as you can see. An average, 1.00 EMR means you no longer pay your work comp carrier additional premium. And, it opens the door to new business opportunities for many.
However, as you move from a 1.00 toward your minimum mod, you are going from average to good to best-in-class.