An Experience Modification Factor [EMF] is a multiplier which is applied to the premium of a workers' compensation insurance policy which provides a significant incentive for effective company risk, safety, and loss control programs.
The EMF represents either a credit or debit that is applied to your annual premium. For example, if your company loss experience is higher than the average of your own industry, you will pay a penalty; in effect, this puts your company at a competitive disadvantage. Conversely, a better-than-average EMF lowers your annual workers' compensation premium costs.
The average EMF for your entire industry is defined as 1.0. For example, if your claims are higher than your industry average by 25% your EMF is 1.25, and if claims are lower than the industry average you will receive a discount on your annual premium.
Who qualifies for experience rating?
All employers whose premium average $4,000 or more a year for a three-year period are eligible for an EMF, and about 90% of all workers' compensation premium dollars come from experience rated policies.
Who determines my EMF?
The National Council on Compensation Insurance [NCCI] computes experience ratings for all businesses and industries. The same factors are used to calculate every employer's EMF -- regardless of which insurance company provides their coverage.
What do EMF calculations include?
EMF is based on actual claims paid and open reserves for a prior three-year period, but it excludes the most recent policy year because claims costs and premium amounts have not been finalized for that year at the time the EMF is calculated. Your EMF is determined each year by comparing your actual losses to expected losses in own industry. In other words, office employees are compared only to other clerical employees and carpenters are compared only to other carpenters.
The number of annual man-hours worked is used to calculate the employer's annual premium, since an employer with 200 employees would be expected to have more claims than an employer with 20 employees. For example, an excavation company is only compared to
other roofing companies with approximately the same size and annual premium.
How can I reduce my EMF?
An effective company safety program, modified duty or return-to-work strategy, and strong internal claims management will lower your EMF, and are crucial to control your workers' compensation costs.
Understanding how an EMF is calculated and how it applies to your annual premium helps you determine if your company's RISK & Safety programs are effective, and helps to identify additional steps your company needs to take to lower your operating costs.
Safety Resource Associates [SRA] specializes in ROI-Based Safety Strategies for medium sized companies in all craft and industry groups.