How Much Does Your Experience Modification Rate Cost You?

Your workers comp (workers' compensation) Experience Modification Rate (EMR), or e-mod, or X-Mod, is a multiplier that raises or lowers how much you will be charged for premiums as an outcome of your own injury record. As a 1.00, you are billed what other businesses of your same size and industry expect to be billed. As a 1.25, you will be billed 25 percent more than another business with the exact same payroll and a clean history. Therefore, if a $100,000 premium bill comes due it will be billed at $125,000.

Mostly all owners who cross 1.00 think one "serious" injury did it. Usually it did not. The equation will assign a much higher value for the initial few thousand dollars of every claim than for the rest of the claim after those amounts. Thus, three strains at $9,000 each may be more costly than one shoulder surgery at $60,000. Moreover, the injuries which create these costs have already been around for a year.

What is an experience modification rate (EMR)?

Each year a rating bureau will calculate an experience modification rate (EMR) which is a single number based around 1.00. To create this rate, the bureau, NCCI in most states, uses the claims and payrolls reported by your carrier and compares the actual loss amounts you have incurred over three years to what other businesses similar in size and type of work are estimated to incur during the same time frame. If you match those estimates, your score would be 1.00. If you do better than the estimate, then you receive credits. If worse, you incur debits.

The amount of credit or debit is reflected in your policy's first page, the Information Page, where you will find a line labeled Item 4. This line reflects the amount of premium your experience modification applies to, which is your payroll run through the published rates for your kind of work (manual premium). The bureau's number multiplies that figure before discounts, expense constants, and surcharges.

Not every employer qualifies for experience rating. An employer is qualified if his/her premium exceeds a minimum dollar amount (established by the State) based on either (a) the most recent 24 months, or (b) the average of the premiums during the entire rating period. In its "ABCs of Experience Rating", NCCI gives an example using a state that requires either $14,000 in the most recent two years, or $7,000 as the average.^[1] If you are below that line, you will continue to be charged the standard published rates and your claims never become a multiplier. Further, payroll and classifications build the premium your mod multiplies. See our workers compensation guide.

How is the experience modification rate calculated?

The process begins with a single ratio using the amount of money that was paid out and/or held for each of your claims and divided by the amount of money which an average company similar to yours, in the same industry classification(s), would have lost. Three adjustments keep that ratio from swinging on an individual "bad" occurrence. The first factor draws a dollar line through every claim. All of the losses below that line are valued as if they were near their actual value and are referred to as the primary loss. Any portion of a claim greater than the line is considered excess loss and is reduced by a discount, limited by a cap, so an extreme injury cannot damage your rating alone.

That split point has lost that one nationwide number. NCCI removed its long time use of the old $18,500 country-wide experience rating plan "split-point" as part of its recent experience rating plan methodology update.^[2] Today, NCCI files a different split point with each state's annual loss cost filing. For example, Oregon's split point is $10,000 for ratings effective January 1, 2026, according to the state Workers Compensation Division’s Bulletin 209,^[3] but NCCI’s illustration states a higher severity state would have a split point of $25,000.

The Bureau also uses two additional elements to determine how much of your actual experience they rely upon. A Weighting value is used to set what percentage of your Total Loss will be applied in the calculation. It increases as you grow, since a larger employer files more Claims for which their experience would generate better predictive results. A Ballast value is a static number that is added at both ends of the Ratio, which causes all Results to trend toward 1.00. Therefore, a small Employer who has had a relatively poor year sees little change in his rate, whereas an Employer with a large number of employees sees an immediate response. Both values are printed on your worksheet.

Why do small claims hurt your mod more than one big injury?

The fact that the line through each claim sits low means that the part of your record that counts at full weight is very near a "head-count." A group of ten $12,000 claims generates approximately $120,000 of primary loss. An individual $120,000 injury generates only one primary piece capped at the split point, plus a heavily discounted amount for every dollar over that cap, therefore it moves your rate far less. The plan is built this way on purpose. Ten cuts and sprains over three years say something about supervision that will keep generating claims, while a single severe accident may just reflect bad luck.

Most states have an exception for injuries to employees which require medical treatment from a doctor but result in zero lost work days. Where the rating bureau has approved what it calls the Experience Rating Adjustment, only 30% of such a claim counts. That is a 70% reduction on both the primary and the excess portions of this type of loss. Only Colorado and a few other states never adopted this adjustment, therefore these types of losses are treated fully as other losses in these states.

This discount also addresses the temptation to voluntarily pay a $600 medical expense related to a workers’ compensation claim and avoid reporting that claim on your claims history. As noted in Part Four of your policy, the section on your duties after an injury, making a voluntary payment regarding a claim is forbidden, and this claim would have counted for only a few dollars anyway.

The reasons closing claims quickly is important for similar reasons. The value of an open claim is calculated as the amount of money the claims adjuster has reserved for it, and reserves are nothing but guesses. A claim carried at $40,000 that eventually settles for $9,000 inflated your premium the entire time it sat there, which is why the loss runs your carrier sends are worth reading line by line.

When does a claim start counting, and when does it drop off?

Your carrier reports your numbers, not you. Roughly 18 months after a policy takes effect, the insurance company will send the Bureau a Unit Statistical Report listing all of your audited payrolls by class code and the amounts paid and reserved on each claim for that year. The updates are then made annually, and include all claims that were open as of 30, 42 and 54 months. Your rate uses the three most recent years of data available, and skips the year just ended because those claims have not had time to mature into reliable values.

All you need to know is how much money this file was worth as of the valuation date, and that is when all the surprises occur. Regardless of whether the claim settled for $8,000 two weeks after the valuation date, your rate will continue to be entered with the $45,000 reserve amount that it had on the valuation date. The adjusters who pay attention to closing claims (or cutting down their reserves) prior to taking the “snapshot” of the valuation date, can schedule a claim review a month or two in advance of the valuation date. If no one has added this meeting to your calendar, ask for it.

How do you check your mod and fix an error?

Having a high Experience Modification Rate (EMR), above 1.00, affects both your ability to secure work and your workers’ comp insurance premiums. Many pre-qualifying services such as ISNetworld^[4] and Avetta^[5] use your annual EMR letter to determine the grade a project owner sees, and many project owners screen out any company with an EMR greater than 1.00.

You should get an Experience Rating Worksheet from either your State Bureau or from NCCI (National Council on Compensation Insurance) every year. You or the broker you designate are entitled to receive them. Verify that the classes of payrolls match what was reported in your final audit for all three years. In addition verify that all claims shown are indeed yours and reflect the value they were at the time of the valuation date. Do not forget to check the ownership section because buying or selling a business can wrongly merge or split loss history based upon NCCI’s ownership rules.

The most frequent mistakes are the same: the incorrect claims of which policy is being covered, the credit for the recovery from who/what caused the injury never comes back to you, the adjusters cuts off a claim without completing the revision, and payroll estimates the audit should have replaced. The correct rate will apply retroactively and you get the money back in return premiums. However, getting this accomplished takes time, first your carrier has to submit an amended report with the Bureau to recalculate your rates and no one else can make this a top priority besides yourself. If this gets stuck at some point, write to your carrier and then the Appeals Process for the Bureau, and lastly to your State Insurance Department.

This guide is intended for informational use only, and outlines general information regarding typical provisions found in NCCI’s Standard Rating Plans and Policy Language. Your actual policy wording and/or endorsements govern. Contact a licensed agent/broker to discuss your exposures.

The Bottom Line

Your Experience Modification Rate (EMR) converts your company's own claim history to a premium multiplier. When your EMR exceeds 1.00, you lose money from your premiums and lose bid invitations at the same time. How often your claims happen will impact your EMR more so than the severity of those claims. Claims reported this year are priced into three renewals. Pull out your worksheet and compare your payroll and claim values against your own internal records. Dispute any numbers that do not match.