Your Top Questions About The Experience Modification Factor Answered

If you deal with workers’ compensation – this one’s for you!

Workers’ compensation insurance is crucial in protecting employees in the event of workplace injuries or illnesses. The Experience Modification Factor (EMF) is one of the most important concepts for businesses to understand when it comes to workers’ compensation. Knowing what it is and how it works can help companies make informed decisions about their risk management strategies. It can also help them understand and improve insurance premiums while prioritizing safety for their business and employees.

What is it? The EMF is a number that insurance companies use to adjust workers’ compensation insurance premiums. 

Why is it advantageous for businesses to understand? Knowing their EMF can help businesses manage their costs effectively and correctly budget for insurance premiums. It also encourages better partnerships for insurers and more informed discussions about risk management. Businesses who prioritize understanding the EMF and using it to help reduce their risk will also have a competitive advantage.

How is it calculated? The calculation is based on the past claims history of the business. It compares the severity, frequency and cost of a business’ compensation claims to similar size companies in the same industry. It usually looks at the number of claims over a specified period.

The formula written out looks like (Actual Losses/Expected Losses) = EMF

The EMF is affected by a number of other factors including: payroll size, industry classification for risk and claims history.

How is it written? EMF is written as a ratio, where 1.0 is the average experience. If a company has less severe or fewer claims than expected that number dips below 1.0. If they have more it rises above 1.0.

How does it affect insurance premiums? Businesses with a lower EMF (below 1.0) are usually awarded with lower premiums. Those with a higher EMF (above 1.0) can expect to pay more.

Why is it used? The EMF helps promote workplace safety and encourages companies to prioritize safety for their employees. It offers an incentive for businesses to educate their employees, put safety measures in places and deploy risk management strategies.

Can a business’ EMF change over time? Yes! It is important to review claims history and other factors for accuracy and to see where improvements can be made to safety and risk management processes. Insurance providers will provide EMF information to clients for review.

The EMF is usually reviewed on a yearly basis and updated using the three most-recent years of claims data. The most weight is given to the most recent year. Industry changes, payroll changes and mergers and acquisitions are other factors that can contribute to a company’s changing EMF.

If you have any further questions about the Experience Modification Factor, don’t hesitate to reach out to our team for help! You can connect with one of our friendly associates by calling or texting (858) 384-1506.

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