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What You Should Know about Experience Rating

Insurance providers use experience rating to evaluate businesses and consequently adjust the premiums they are required to pay. The rating serves as a reflection of past loss experiences and is based on the assumption that historical loss experiences can predict future loss experiences. In a nutshell, what this means is future losses are anticipated to be similar to those incurred in the past. Experience Modification Rate is full for EMR, and has a strong impact on businesses. Insurance companies use this number to determine the cost of past injuries and likelihood of future risk. Generally, businesses pay less compensation insurance premiums if their EMR is also low. The industry average of EMR is 1.0, with figures below that being considered low and anything above it high. If an insurance provider pays worker compensation claim for a business, there is a great likelihood that it EMR is greater than 1.0.

Worker compensation premiums are raised by insurance providers for businesses with high experience ratings, to reduce the insurance company’s risk. Even though experience ratings of a business remain unchanged for three years, the good news is that they can be lowered. A good starting point for lowering EMR is businesses implementing effective safety programs aimed at preventing injuries and eliminating hazards. Whenever a business has no injuries, there are no claims to be made. The situation at the workplace however is quite different, since injuries can happen any time, therefore to prevent the EMR from increasing further, proper management and response are a must. To adequately control EMR, it is necessary that businesses have a plan for mitigating worker compensation claims and injuries.

Through experience rating, businesses have a financial incentive to minimise work-related injuries and losses perhaps through implementation of safety programs. Also, EMR encourages employers ensure that injured employees are returned to work as soon as possible. Through experience rating, compensation insurers are able to collect enough premiums to cover the insured risks. Businesses incapable of controlling EMR in-house can hire full-service safety companies to help them control their EMR and consequently reduce overall costs. Particularly with regard to saving money and bidding for work, lower EMR could give businesses a competitive edge over other rivals in their industry. In the construction industry, construction owners and general contractors know the importance of low EMR numbers, hence they usually prequalify companies with low EMR scores even before they assess any bids. On that note, it would be unfortunate to miss out on money and business opportunities due to high EMR.
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